Outlook 2012: Secondary market could get lift from 2011's late influx of new supply

By Sheri Kasprzak

New York, Dec. 30 - Although secondary market activity was fairly subdued early in the year, a huge surge of new issues in the latter half of the year may fuel secondary activity well into 2012, traders said.

Traders reached late in the year said they expect the secondary market to continue to see some solid investor activity in the coming year as new-issue volume increases.

"There's more coming in primary, so we'll see more in secondary," said one trader.

"The big difference, I think, will be the volume early on in the year. We've got a good momentum going on [in late 2011], and I expect that to drive a lot of secondary activity early in the year. As for the rest of the year, we'll really have to wait and see, but demand has been healthy enough that I think it will spill over into early 2012."

Late in the year, a major influx of offerings drove secondary action. Among some of the more prominent trades were the New York City Liberty Development Corp.'s Four World Trade Center project bonds. After pricing in early November, the 5% 2044 bonds were seen trading later that month at 4.802%. The bonds originally priced at 98.625.

Also out of New York, the Empire State Development Corp.'s series 2011A state personal income tax bonds were also seen moving in secondary near the end of the year. The 3.5% 2028s were trading at 3.496%. The bonds were priced Dec. 13 at par.

In the housing sector, the New York City Housing Development Corp.'s series 2011J-1 revenue bonds were also trading. The 4.6% 2036s were seen at 4.3% Dec. 19. The bonds priced Dec. 15 at par.

Secondary action up in Q3

In the third quarter of 2011, $851.36 billion par value of bonds was traded in the secondary market, according to the most recent data available from the Municipal Securities Rulemaking Board. Of that, $439.01 billion was customer brought, $277.64 billion was customer sold and $134.71 billion was inter-dealer activity.

The majority of the bonds traded were fixed-rate bonds, with $400.41 billion in fixed-rate debt traded, which was followed closely by $351.22 billion of variable-rate debt traded. A total of $33.08 billion of zero-coupon bonds were traded, and $66.64 billion of other bonds were traded.

The State of California's bonds due in June 2012 were the most-traded of the third quarter of 2011, with $10.82 billion of bonds traded. The State of Texas came in second with $6.71 billion of its bonds due in August 2012 traded, and the East Baton Rouge Parish Industrial Development Board's bonds due August of 2035 came in third with $6.13 billion changing hands.

First quarter seen lighter

Comparatively, the first-quarter of 2011 saw $842.09 billion in trades. Of that, $413.15 billion were customer bought, $297.11 billion were customer sold and $131.83 billion were inter-dealer trades.

In the first quarter, most of the bonds traded were fixed rate with $418.49 billion of bonds traded. A total of $315.20 billion of variable-rate bonds were traded, and $41.25 billion of zero-coupon bonds changed hands. Other bonds accounted for $67.15 billion of bonds traded in the first quarter.

In terms of issuers, the East Baton Rouge Parish IDB took the first two spots in the first quarter. The board's bonds due in December 2040 had $4.73 billion in trades during the quarter, and its bonds due in August 2035 saw a total of $4.23 billion in trades during the first quarter.

The top three was rounded out by the Golden State Tobacco Securitization Corp.'s bonds due in June 2047, which saw $3.72 billion in trades.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.