The municipal market headed lower, following Treasuries, on better-than-expected GDP numbers released Wednesday morning.
GDP increased at an annual rate of 1.7% in the second quarter of 2013, according to the advance estimate released by the Commerce Department. The increase was better than the 1% growth expected by economists.
Treasury yields rose on the news, with the benchmark 10-year yield climbing eight basis points to 2.68% and the 30-year yield increasing six basis points to 3.73%. The two-year yield rose one basis point to 0.34%.
"Real GDP growth - although still below levels that the Fed would judge to be consistent with sustainable job growth that would lower the unemployment rate over time - was moderately ahead of expectations in the second quarter on a fairly solid gain in consumer spending and business equipment spending and another double-digit increase in residential investment," wrote economists at RDQ Economics. "The one argument from the report in favor of continuing QE is the slow nominal growth rate of GDP, which has run at only 2.9% over the last year. However, we are skeptical of the quality of the early GDP data and the employment data suggest that job growth is consistent with a somewhat stronger picture for GDP growth than is being reported."
They added, "We think this report, which shows faster growth in the second quarter than that reported for the first quarter, will leave the Fed's characterization of economic activity in today's Federal Open Market Committee statement little changed from that given at the June meeting." The FOMC statement will be released at 2 p.m. Eastern.
Munis followed Treasuries, though yield movements were more muted in the tax-exempt sector. "Munis are not following Treasuries as much," a New York trader said. "They are outperforming Treasuries or not performing as badly."
In the largest deal of the day expected in the primary, Massachusetts will auction $600 million of general obligation bonds, rated Aa1 by Moody's Investors Service and AA-plus by Standard & Poor's.
Tuesday, yields on the Municipal Market Data scale ended as much as two basis points lower. The 10-year yield slipped two basis points to 2.67% and the 30-year yield fell one basis point to 4.20%. The two-year finished flat at 0.43% for the 10th consecutive session.
Yields on the Municipal Market Advisors scale also ended as much as two basis points lower. The 10-year and 30-year yields fell two basis points each to 2.87% and 4.27%, respectively. The two-year was steady at 0.54% for the fifth session.
