The municipal bond market paddled against stronger-than-expected economic currents and weaker Treasuries Thursday, with yields losing some ground on the longer end.
Upward revisions on gross domestic product and a decline in unemployment claims pushed Treasury yields higher across the curve, dragging muni yields with them a couple of basis points. The market mostly paused, preparing itself for Friday's unemployment report.
A black cloud of newsworthy credit woes also lingers as issuers prepare to bring the last significant deals to market. The week's remaining large issues arrived to little fanfare, but were cleared nonetheless as investors' appetite for tax-exempt paper persisted, traders said.
"It was mostly a day that was relatively steady, with not too much change in the front end of the curve and a slight bias to the downside following Treasuries," a trader in California said. "Economic numbers were stronger than we thought they'd be. And we haven't seen a big sell off with Treasuries; the fact that were only down 10/32 on the 10-year is pretty good. But I think the market is marking time until tomorrow's job's report."
As with Wednesday's session, traders saw large bid lists from customers, providing another possible offset for the market, the trader added. "Whether it's starting to look like a little dressing up of the books as we approach year end, the window is going to close here fairly rapidly on new issues," he added.
Headlines from struggling municipalities Detroit, Illinois, and Jefferson County, Ala., have dominated news this week. But they've yet to eclipse new issuance in market participants' minds or affect overall market prices in any meaningful way, traders say.
Still, Illinois paper continued to perform well in the secondary market Thursday, a trader in Illinois said. Yields on paper maturing between 20 and 30 years have strengthened about 20 basis points from Wednesday.
On Tuesday, the state's General Assembly passed proposed legislation to restructure pensions. Spreads for both Chicago and Illinois general obligation paper tightened Wednesday by 10 to 35 basis points, according to Interactive Data.
"Illinois bonds are still reacting to the news," the trader said. "They've been stronger each day."
Strong economic news also factored into the market's tone Thursday, traders reiterated. The Commerce Department reported that gross domestic product numbers showed a larger-than-expected upward adjustment, to 3.6% growth, representing a 0.8-point improvement from the preliminary report and greater than average revision.
Additionally, the Department of Labor reported that unemployment claims decreased 23,000 during the Nov. 30 Thanksgiving holiday week to 298,000.
The department claims analyst said the latest reading should be taken with caution as weekly readings demonstrate more volatility than normal, making seasonally adjusted claims around a major holiday difficult to measure.
The markets await Friday's important November payroll numbers.
In the negotiated market, Bank of America Merrill Lynch priced $494.5 million of Washington, D.C., general obligation bonds. The bonds were rated Aa2 by Moody's Investors Service and AA-minus by Standard & Poor's and Fitch Ratings.
Yields ranged from 0.33% with coupons of 2.00% and 4.00% in a split maturity in 2015 to 4.15% with a coupon of 5.00% and 4.25% priced at par in a split maturity in 2030. Citi priced $476.6 million of Delaware River Port Authority revenue bonds. The bonds were rated A3 by Moody's and A by Standard & Poor's.
Yields ranged from 4.06 with a 5.00% coupon and 4.125% priced at par in a split maturity in 2027 to 4.87% with a 5.00% coupon in 2040. Ramirez & Co., Inc. priced $351.1 million of Nassau County, N.Y., taxable general improvement bonds, one series of bond anticipation notes and two series of tax anticipation notes.
The three series of notes, totaling $350 million, all mature in 2014 with 2.00% coupons. They were rated SP-1-plus by Standard & Poor's and F1 by Fitch.
The $1.1 million of taxable bonds were rated A2 by Moody's, A-plus by Standard & Poor's and A by Fitch. They mature in 2015 with a coupon of 0.75%.
Trades compiled by data provider Markit showed mostly weakening. Yields on Houston 5s of 2022 gained four basis points to 2.78%. Wellborn Special Utility District Texas Water System 4s of 2031 jumped five basis points to 4.20%.
Puerto Rico Sales Tax Financing Corp 5.375s of 2039 and New Jersey Economic Development Authority 5.125s both fell two basis points to 7.74% and 5.31%, respectively.
Yields on the Municipal Market Data triple-A scale rose up to two basis points higher past six years on the curve. Bonds maturing past 11 years weakened the most.
The benchmark triple-A 10-year yield on Thursday inched up one basis point to 2.74%. The 30-year increased two basis points to 4.21%. The two-year held at 0.33% for a 15th straight session.
Yields on the Municipal Market Advisors benchmark triple-A scale ended higher through most of the curve from four years out. The 10-year ticked up one basis point to 2.77%. The 30-year yield also rose one basis point to 4.42%. The two-year held at 0.37%.
Treasuries closed out Thursday weaker. The benchmark 10-year yield increased five basis points to 2.88%, while the 30-year yield has increased two basis points to 3.92%. The two-year moved up two basis points to 0.31%.