The municipal bond market posted gains Thursday, driven higher by demand for shorter-maturity debt and a stronger Treasury market, as customer buy trades from dealers made up the majority of transactions.

By afternoon, more than $5 billion had been traded. Dealers selling to customers accounted for 41% of transactions, or $2.11 billion. Interdealer trades at $1.52 billion made up 30% of the transactions followed by $1.48 billion, or 29%, of dealers buying bonds from customers.

Most of the buying was for bonds maturing within five years, market participants said. Still, retail buyers extended further out in duration in the secondary because of institutional interest on the short-end of the curve, said Dan Toboja, vice president of Ziegler Capital Markets.

"The short-end is stable but remains well bid," he said. "The long-end has liquidity challenges. Institutions are not buying the long-end in the secondary."

One New York trader said trading was focused on the short-end of the curve pushing the market higher. "It feels unchanged with a slightly more positive bias, like Wednesday," he said. "Though some trades are stronger than yesterday."

Munis took direction from a higher Treasury market, this trader said. Positive gross domestic product numbers released Thursday morning pulled Treasuries back from their high.

Trades compiled by data provider Markit showed firming.

Yields on Maryland State Economic Development Corp. 5.75s of 2025 fell five basis points to 5.01% and California's Golden State Tobacco Securitization Corp. 5.125s of 2047 slipped three basis points to 7.64%.

Yields on Puerto Rico Aqueduct and Sewer Authority 5.125s of 2037 and Texas A&M University 5s of 2023 fell three basis points each to 7.71% and 2.60%, respectively.

Yields on Pennsylvania Turnpike Commission 5.25s of 2024 and Wisconsin 5s of 2020 fell one basis point each to 3.81% and 2.01%, respectively.

Still, in block size trading of Ohio's Buckeye Tobacco Settlement Financing Corp. 6.25s of 2037, bond prices fell, with $20 million, all in $5 million blocks, trading four basis points higher in yield as the day progressed.

For the week through Wednesday, customer buy trades increased while sell trades decreased, according to BondDesk Group, which tracks retail trades of under 100 bonds.

The number of buy trades rose to 76,275 from the previous week's 70,584. Sell trades slipped for the second consecutive week to 32,832 from the previous week's 33,431. The buy-to-sell ratio rose to 2.3 from 2.1 and was the highest in at least five weeks.

In par value traded, customers bought $1.987 billion, up from the previous week's $1.852 billion. Sell trade fell for the second week to $915 million from $933 million. The buy-to-sell ratio rose to 2.2 from 2.0 and was the highest in at least five weeks.

On Thursday, the triple-A Municipal Market Data scale ended as much as three basis points stronger after a stronger session Wednesday. The 10-year yield slipped two basis points to 2.49% and the 30-year yield fell three basis points to 4.08%. The two-year was steady for the eighth session at 0.34%.

Yields on the Municipal Market Advisors benchmark scale also ended as much as three basis points stronger. The 10-year yield fell one basis point to 2.64% and the 30-year yield dropped three basis points to 4.27%. The two-year was flat for the seventh session at 0.48%.

Treasuries were much stronger Thursday, despite better economic data released. The benchmark 10-year yield slid four basis points to 2.60% and the 30-year yield fell five basis points to 3.72%. The two-year yield fell one basis point to 0.30%.

In economic news, third quarter real gross domestic product growth came in at 2.8%, stronger than the 2.1% expected. Economists said the real test will come with the release of fourth quarter GDP to see how much the government shutdown affected the economy.

"Inventories provided the surprise kick to real GDP growth as the 0.8-point addition raised third-quarter real GDP growth to an unexpected 2.8% gain," economists at RDQ Economics wrote. "When the 1.9% increase in the GDP deflator is overlaid on the real gain, we see that nominal GDP is estimated to have grown at a respectable 4.8% pace."

"Manufacturing is on an upswing according to the ISM and a faster pace of inventory growth often accompanies such a pickup," the economists said. "This gain in GDP combined with the upswing in the ISMs into October puts a tapering decision very much on the table in December in our view."

In other economic news, initial jobless claims fell 9,000 to 336,000 in the week of Nov. 2, according to the Department of Labor. Analysts expected 337,000 claims. The Oct. 26 week level was revised down 5,000 to 345,000.

"The distortions related to California are beginning to dissipate from the four-week average in claims, which we see as drifting down towards the mid-330,000 area over the next few weeks," RDQ economists said. "The average level of claims in September and October is around 330,000, which is in line with the average for August."

Friday morning, non-farm payrolls are expected to be released that could affect munis coming off better GDP numbers. "It will be closely watched and in any market that has been as stagnant as munis have been for over a month, the number can have an oversized effect on the lighter volume," Toboja said. "It will throw more confusion to the market regarding the Fed's taper."

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