Market Post: Digesting GDP, Waiting for FOMC

Higher-than-expected gross domestic product numbers released Wednesday surprised the market, impacting Treasuries while the municipal market waited to digest the information ahead of the Federal Open Market Committee statement release.

Treasuries responded to the GDP numbers on Wednesday morning by weakening across the curve. The two-year note yield rose three basis point to 0.58%, the 10-year jumped seven basis points to 2.53%, and the 30-year increased four basis points to 3.27%.

Meanwhile, municipals remained aloof to the biggest headline of the morning, moving marginally. The short end of the curve held steady while the intermediate and long end were cut up to 2 basis points, according to Municipal Market Data's triple-A scale.

"Munis are lemmings: they follow, not lead," said a New York based trader explaining the market's reaction.

The supply and demand technicals will likely buffer the market from any significant impact stemming from economic data, traders agreed.

"I have my doubts because supply remains very tight," said a New Jersey based trader. "The 30-day supply isn't at the lowest point of the year, but it's still very low.

"I don't know if this one-day move in Treasuries will be enough to drags munis with it," said the trader.

The economic data calendar remains heavy, with indicators yet to be announced that could erase the damage the GDP announcement made to Treasuries, pointed out the New York trader. Still ahead are the Federal Open Market Committee statement this afternoon and Friday's unemployment report.

"Unemployment on Friday could reverse everything that happened [on Wednesday]," said the New York trader. "If you get a below-consensus number, Treasuries will probably snap right back."

Amidst GDP impact speculation, the city of Suffolk, Va., sold its $124.745 million general obligation and refunding bonds, with Bank of America Merrill Lynch winning the bid with a TIC of 3.1075%.

The deal was priced to yield from 0.11% with a 3.0% coupon in 2015 to 3.72% with a 3.50% coupon in 2042, according to data provided by TM3. It has an optional call feature on Feb. 1, 2024.

Standard & Poor's rates the deal AAA, Fitch Ratings gives it a AA-plus, and Moody's Investors Service rates the deal Aa1.

Proceeds will go toward various capital improvement projects, as well as retire some of the issuer's outstanding debt. The issuance will raise the city's debt load to $361.4 million.

B of A Merrill also appeared to win the Harris County, Texas, $55.65 million unlimited general obligation tax bonds, according to data from TM3. The deal was priced to yield from 0.21% with a 5% coupon in 2015 to 4.05% with a 4% coupon in 2038 and the deal has a call feature on Sept. 1, 2022.

The proceeds will redeem $27.665 million of Series 2013 bond anticipation notes, and finance various capital improvements. The bonds are rated A2 by Moody's.

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