The market weakened on Monday as participants held their breath awaiting some of the week's larger deals.
While the volume will increase, the week started slow with just a handful of small competitive deals hitting the market on Monday. Issuance will increase by 24% this week to $6.67 billion from $5.37 billion that Thomson Reuters reported came to market last week.
Traders paid special attention to New York City's general obligation deal, which entered its first day of retail order period on Monday. The city will issue $900 million of tax-exempt fixed-rate GO refunding bonds, opening up to institutional on Wednesday.
The appetite is expected to be ferocious.
"New York paper is on the short list of names that we can't get enough of, along with California and even Texas," said a trader based in the Midwest. "There's so many state-specific funds for New York, so portfolio managers need it to maintain rotation within their funds."
The deal comes in two parts, comprised of $706.7 million fiscal 2015 Series A bonds and $193.3 million of Series B bonds, both with maturities ranging from 2015 to 2034, according to the deal's preliminary offering statement. In today's retail purchasing, yields on $706.7 million ranged from 0.97% with a 5% coupon maturing in 2018 to 3.40% with a 5% coupon in 2034. There are sealed bids in 2016 and 2017.
Yields on $193.3 million ranged from 0.97% with a 3% coupon in 2018 to 3.65% with a 3.50% coupon in 2034. There are sealed bids in 2015, 2016, and 2017.
The bonds from both series are callable at par in 2024.
The underwriters will accept institutional orders on Wednesday. Bank of America is the lead underwriter. The deal is rated Aa2 by Moody's Investors Service and AA by both Standard & Poor's and Fitch Ratings.
Recent city politics, especially with the election of Democratic mayor Bill DeBlasio, have made traders curious as to exactly how the market will receive the debt.
"With the city having to deal with labor contracts and additional healthcare costs, it'll be interesting to see if there will be any widening of spreads," a New York trader said. "There's been controversy about how the city is run, so it will be interesting to see how the deal is received."
Even with the uncertainty, traders still expect the New York GO deal and the Port Authority of New York and New Jersey deal to be the highlights of this week's calendar.
Citigroup Global Market will bring a two-fold deal totaling $833.8 million of Port Authority revenue bonds on Thursday. The bonds mature from 2015 to 2034.
STAGNANT MARKET
As traders patiently waited for the two major New York deals to open for institutional, the secondary market was sluggish, mostly remaining flat, traders said.
Yields on bonds maturing between 2015 and 2020 were unchanged, while ones maturing between 2021 and 2044 reported just a one basis point rise, according to the Municipal Market Data's triple-A scale. The 10-year benchmark closed at 2.420%.
Municipal Market Advisors 5% triple-A scale reported no change along the yield curve, with durations from 2015 to 2044 remaining flat on Monday.
In secondary trading yields edged higher in round lots trading, by just one basis point among most major issuers, according to data provided by Markit.
Yields on Buckeye Ohio Tobacco TURBO 5.875s in 2047 rose slightly to 7.89% from 7.88% on Monday, while the commonwealth of Puerto Rico public improvement refunding 5s in 2041 rose one basis point to 7.56% in trading on Monday, according to Markit. Yields on New Jersey transitional transportation system 5s in 2042 inched up to 4.05% from 4.04% on Monday as well.
Following last week's rally, the treasury market was flat to slightly weak on Monday. Yields rose on the two-year to 0.47% on Monday from 0.45%, while the ten-year stayed flat at 2.44% and the 30-year inched up one basis point to 3.24%.
ISSUANCE AHEAD
Following Monday's slow primary, issuance will pick up over the course of the week, even outside of the New York City and Port Authority deals beginning on Tuesday.
JPMorgan will bring a $166.1 million Idaho Health Facilities Authority revenue bond deal on Tuesday rated A3 by Moody's Investor Services and A-minus by Standard & Poor's. The healthcare sector has experienced one of the largest declines in issuance volume so far in 2014, down 35% as of June 31st according to data provided by the Bond Buyer. That drought will make the debt especially enticing to the market, the Midwest trader said.
One New York trader noted that the obligor, Saint Luke's Healthcare System was recently downgraded and its liquidity was limited.
In the competitive markets, Minnesota will auction a four-part deal totaling $904 million of general obligation bonds on Tuesday as well.
"It's a strong credit," the New York trader said. "We'll buy it, but frankly it's usually not that attractive. It's good for the state. There's no opportunity for additional yield."
The bonds will mature from 2015 to 2034. The deal is rated Aa1 by Moody's and AA-plus by both S&P and Fitch.
Alabama University Board of Trustees will sell a two-part deal totaling $243.9 million of revenue bonds on Tuesday.
"Any time there is a flagship school deal usually it's a pretty secure issue," the New York trader said. "Not sure how exciting the yields will be."
The bonds mature from 2015 to 2021 and are rated Aa2 by Moody's and AA-minus by S&P.
