The tax-exempt market had a positive tone Wednesday morning as traders said there is still strong demand for paper.
"Things are OK this morning," a Philadelphia trader said. "Tone wise things feel a little bit better. There was a lot of activity yesterday and today opened up with decent activity so it's stronger but it's not a free-for-all."
He added the market felt stronger by one or two basis points.
"There are big deals coming today but when talking to the street and watching the tape, we are seeing cash out there still from January with coupon payments and maturities. And without a lot of negative muni news, we will probably have this optimism around putting money to work."
He added as long as Treasury rates don't make any big jumps, munis will stay range-bound.
In terms of overall supply, this trader added the five- to 15-year part of the curve is active and stronger by a few basis points, but there are very few offerings for bonds inside five years. "I haven't seen any depth block-side bonds inside of five years since mid-December," the trader said. "That area is sparse right now. But between five and 15 years there is depth and the tone is positive."
In the primary market Wednesday, JPMorgan is expected to price $706.3 million of Arizona Transportation Board subordinated highway revenue bonds, rated Aa2 by Moody's Investors Service and AA-plus by Standard & Poor's.
Citi is expected to price for institutions $500 million of New York Metropolitan Transportation Authority revenue bonds, rated A2 by Moody's and A by Standard & Poor's and Fitch Ratings.
In retail pricing Tuesday, yields ranged from 0.50% with a 2% coupon in 2014 to 3.39% with a 5% coupon in 2043. Bonds maturing in 2013 were offered via sealed bid. The bonds are callable at par in 2023.
Jefferies & Co. is expected to price for retail $411.2 million of San Diego County Regional Airport Authority bonds, rated A1 by Moody's and A-plus by Standard & Poor's and Fitch.
Barclays is expected to price $329.4 million of Ohio State University special purpose general receipts bonds, rated Aa2 by Moody's and AA-minus by Standard & Poor's.
In the competitive market, North Carolina will auction $250 million of revenue bonds.
On Tuesday, the Municipal Market Data scale ended higher for the third consecutive trading session. The two-year and 10-year yield fell one basis point each to 0.33% and 1.68%, respectively. The 30-year yield dropped two basis points to 2.72%.
The 10-year yield still remains 21 basis points above its record low of 1.47% set Nov. 28. The 30-year yield trades 25 basis points above its record low of 2.47% set Nov. 28.
Treasuries were stronger on the long-end. The benchmark 10-year yield and the 30-year yield fell one basis point each to 1.82% and 3.01%, respectively. The two-year yield increased one basis point to 0.26%.
In economic news, the consumer price index was flat in December, meeting economists' expectations. The core rate rose 0.1%.
"After surging to almost 4% in the fall of 2011 following the Fed's QE2 program, headline inflation eased back since last winter and has since been remarkably stable running between 1.75% and 2% on a four-quarter change basis," wrote economists at RDQ Economics. "Core CPI inflation eased back from 2.2% in 2011 to 1.9% in 2012."
They continued, "The U.S. may see inflation ease back a little further during the first quarter as last year's strong first quarter increases drop out of the year-over-year inflation comparison. Policymakers at the Fed will be reassured by these data. However, our view is that inflation will pick up over the balance of the year fueled by QE3 and an associated weakening of the dollar and a pickup in commodity prices."
In other economic news, industrial production rose 0.3% while capacity use was up to 78.8% in December. Production were in line with economist expectations while capacity came in above the expected 78.5%.
"Although an unseasonably warm December resulted in a sharp decline in utilities output and held back industrial production, the manufacturing sector as a whole and capital spending in particular appeared to be recovering toward the end of 2012," RDQ economists wrote. "Within manufacturing, motor vehicles have been the best performing sector of late but strength in the last two months was also evident in business equipment production and construction supplies."