Municipal bond trading had a muted reaction, following the lead of Treasuries, to a worse-than-expected GDP number Friday morning.
Real gross domestic product increased at an annual rate of 2.5% in the first quarter of 2013 and fell short of the 3% increase expected by economists. Still, it was much stronger than the 0.4% increase in the fourth quarter of 2012.
Economists were quick to react. "In the last two quarters, measured real GDP growth has been held back by double-digit annualized quarterly declines in defense spending, which have portrayed a weaker picture of the economy than the monthly data on private sector activity have painted," wrote economists at RDQ Economics. "Although real GDP growth in the first quarter was below expectations, at 2.5%, real consumer spending growth and residential investment ran ahead of forecasts."
"For the year as a whole, we are projecting 2.5% real GDP growth and, with the share of real government spending in real GDP at a recorded low, we believe much of the measured fiscal 'drag' is behind us and we expect the stronger private-sector growth rate to show through in the overall GDP data over the balance of the year."
Munis were mostly unchanged in the Friday morning trading session. "There is a muted Treasury reaction and it's similar on the muni side," a Chicago trader said. "It is roughly in line with Thursday. It seems like the primary is such the driver of action that Fridays are spent preparing for next week's calendar. That's how today feels."
Municipal bond scales ended steady to one basis point stronger Wednesday after posting small losses earlier in the week.
Yields on the Municipal Market Data 5% triple-A GO scale ended as much as one basis point stronger. The 10-year was steady at 1.70% for the seventh session and the 30-year closed unchanged at 2.90% for the fifth trading session. The two-year closed steady at 0.29% for the 15th session.
Yields on the Municipal Market Advisors 5% scale also ended flat to one basis point stronger. The 10-year yield finished flat at 1.77% for the second session and the 30-year closed unchanged at 3.02% for the sixth session. The two-year was flat at 0.32% for the 15th session.
Treasuries were a few basis points stronger Friday morning. The benchmark 10-year yield slid four basis points to 1.68% and the 30-year yield dropped three basis points to 2.88%. The two-year yield fell one basis point to 0.23%.
