Market Close: Munis Buy Time on Scant Activity, Issuance

Marked by little issuance and activity, the municipal market spent Thursday gathering itself after the past few days of active buying and trading and before an employment report traders regard as significant.

In the meantime, the market still had a job to do. Several deals priced with limited fanfare. Dealers perused blocks. Tax-exempt yields moved little before ending essentially where they started.

But the lull showed a market in a position of strength, given its fundamentals, a trader in New York said.

“Munis are fine; the market is OK,” he said. “The underlying tone is strong. There’s not a whole lot of supply. Obviously, the market’s laying down before the number tomorrow morning, a pretty important number.”

Friday’s employment report is expected to arrive weaker than economist estimates, the trader said. It should lead to a little follow-through in the muni market, he added, and slightly lower yields.

Midway through Thursday, modest action in the secondary market, particularly out in longer maturities, propelled an otherwise quiet session. Tax-exempt yields appeared stronger by a basis point or two beyond the front end of the curve, as a result.

Mostly, though, the municipal market passed the session sandwiched between a day of moderate issuance and active trading on Wednesday and Friday’s employment numbers, traders say. Direction for the market proved more difficult to discern on Thursday.

“You’re definitely seeing longer maturities getting bid up a little bit,” a trader in Chicago said. “Out to the 30-year range is stronger. I call it unchanged on the front end of the curve. It’s a little stronger out longer. It’s quiet before the big unemployment number tomorrow, and yesterday was pretty active.”

There were pockets of “specific inquiry” that traders were trying to fill, a trader in North Carolina said. “There’s no real market shift or move right now, as far as today’s concerned,” he said. “The market seems somewhat firm, especially out past 10 years.”

Two deals of note arrived on the day. Citi priced $180.7 million of revenue and refunding bonds for the Raleigh, N.C., Combined Enterprise System. The bonds are rated Aa1 by Moody’s Investors Service and triple-A by Standard & Poor’s and Fitch Ratings.

Yields range from 0.47% with a 2.00% coupon in 2016 to 3.00% with a 5.00% coupon in 2043. The bonds are callable at par in 2023.

Citi also priced $89.8 million of New Jersey Turnpike Authority turnpike revenue bonds. The bonds are rated A3 by Moody’s, A-plus by Standard & Poor’s and A by Fitch.

Yields range from 3.00% priced at par and 2.70% with a 5.00% coupon in a split maturity in 2026 to 3.75% priced at par and 3.33% with a 5.00% coupon in a split maturity in 2035. The bonds are callable at par in 2023.

In the secondary market, trades compiled by data provider Markit showed mostly strengthening. Yields on Golden State, Calif., Tobacco Securitization Corp 5s of 2045 plunged six basis points to 2.85%.

Yields on Centennial School District Bucks County, Pa., 5s of 2030 and Liberty N.Y. Development Corp. 5.25s of 2035 fell three basis points to 1.80% and 3.97%, respectively.

Yields of California 5s of 2027 and Denver Colo. City and County Airport 5s of 2027 dipped two basis points to 2.70% and 3.17%, respectively.

Yields on Washington state 5s of 2035 inched up one basis point to 2.81%.

Muni yields ended the day flat, according to a read from the Municipal Market Data triple-A GO scale. The scale showed tax-exempt yields up to two basis points lower beyond 15 years for much of the day before settling steady.

The 10-year yield finished Thursday’s session steady at 1.66% for a second straight session, as did the 30-year yield, which held at 2.79%. The two-year finished flat at 0.29% for the 20th session.

Yields on the Municipal Market Advisors 5% scale ended Thursday flat. The 10-year held at 1.73% and the 30-year steady at 2.95%. The two-year was frozen at 0.32% for the 20th session.

Treasury yields ended Thursday mostly flat. The benchmark 10-year yield inched up in the early afternoon before settling flat at 1.63%. The two-year yield hovered all day around its closing level at 0.21%. The 30-year yield ticked up one basis point for most of the day before falling to 2.82%, or one basis point lower on the day.

In economic news, the Labor Department reported Thursday that the drop in initial claims for U.S. state unemployment benefits far exceeded expectations for the week of April 27. The number declined by 18,000 to 324,000, its lowest level in more than five years.

Economists expected a claims level of 345,000, representing an increase 6,000 from the number previously reported for the week of April 20. The 339,000 figure for last week was later revised up to 342,000.

Also, the Commerce Department reported Thursday that the U.S. international trade deficit decreased 11% in March to $38.8 billion from the revised $43.6 billion deficit in February.

The muni market largely ignored the numbers. Yields failed to respond to the steep plunge in unemployment claims, traders said.

But the stock markets did. The Dow Jones Industrial Average ended Thursday about 131 points higher. The S&P 500 rose by almost 15 points on the day.

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