Municipal bond yields moved higher after data on jobless claims and manufacturing came in better than analysts expected.
With little new issue supply and light trading activity in the secondary, munis followed the direction of Treasuries.
"Munis are down but it's quiet," a New York trader said.
Others agreed. "I would call this the annual summer swoon," a New Jersey trader said. "There is just not a lot going on."
Still, other traders said portions of the market felt stronger as demand outweighed what little supply was in the market.
"It has probably ticked up a few basis points here and there and moved opposite with Treasuries," a Los Angeles trader said. "And that has to do with no supply."
He added the secondary market was quiet. "It has been that way for a few days or maybe even a week."
In the only major deal to price Thursday, Bank of America Merrill Lynch won the bid for $189.1 million of Oyster Bay, N.Y., bond anticipation notes, rated SP-1 by Standard & Poor's. The bonds yielded 0.65% with a 5% coupon in 2014.
In the secondary market, trades compiled by data provider Markit showed weakening.
Yields on Fairfax County, Va., 5s of 2024 rose three basis points to 2.94% and Ohio's Buckeye Tobacco Settlement Financing Authority 6.5s of 2047 increased two basis points to 8.05%.
Yields on Miami-Dade County, Fla., 5s of 2035 and North East, Texas, Independent School District 4s of 2025 rose two basis points each to 5.10% and 3.49%, respectively.
Yields on Ohio's American Municipal Power 5s of 2038 and Wisconsin Health and Educational Facilities Authority 5.125s of 2031 rose one basis point each to 5.06% and 5.25%.
Thursday, yields on the Municipal Market Data scale ended as much as four basis points higher. The 10-year yield rose four basis points to 2.71% and the 30-year yield increased two basis points to 4.22%. The two-year finished flat at 0.43% for the 12th consecutive session.
Yields on the Municipal Market Advisors scale ended as much as five basis points weaker. The 10-year and 30-year yields rose four basis points each to 2.92% and 4.32%, respectively. The two-year yield increased one basis point to 0.55%.
Treasury yields jumped Thursday. The benchmark 10-year yield spiked up 14 basis points to 2.72% and the 30-year yield increased 13 basis points to 3.77%. The two-year yield rose two basis points to 0.34%.
Positive economic news pushed Treasury prices lower. Initial jobless claims fell 19,000 to 326,000 for the week ending July 27, the lowest level since Jan. 19, 2008. Economists expected 345,000 claims. The Institute for Supply Management manufacturing index rose to 55.4 in July from 50.9 in June, beating economists' expectations of 52.0 for the index.
For the week ending July 31, activity in retail trades of under 100 bonds fell for the third consecutive week, according to BondDesk Group.
The number of investor buy trades slipped to 84,761 from 86,805 the week ending July 24. It dropped from 90,078 the week ending July 17. The number of investor sell trades also slipped to 38,923 from 40,245 the week before. Sell trades dropped from 41,016 the week ending July 17. The ratio of buy-to-sell trades stayed at 2.2 for the third consecutive week.
Par value traded also fell for the third straight week. Buy trades fell to $2.213 billion from $2.248 billion the week before. It also slipped from $2.318 billion the week ending July 17. Par value of investor sell trades fell to $1.039 billion from $1.056 billion. It continued its slide from $1.078 billion in the week ending July 17. The ratio of buy-to-sell trades in dollar amount remained at 2.1 for the second week.
Looking back at the month of July, municipal bond performance continued its negative returns, driven by more weeks of mutual fund outflows and Detroit's bankruptcy filing, said J.R. Rieger, vice president of fixed income at Standard & Poor's Dow Jones Indices.
The S&P National AMT-Free Municipal Bond Index returned negative 1.08% in July, extending losses for the year to 3.87%.
After Detroit's bankruptcy announcement, the S&P Municipal Bond Michigan Index fell 1.28% in July, returning a negative 3.87% year-to-date. Chicago's three-notch downgrade to A3 by Moody's Investors Service helped push the S&P Municipal Bond Illinois Index down 1.23% in July, returning a negative 3.70% year-to-date.
Puerto Rico bonds were also some of the worst performers. "Particularly hard hit was Puerto Rico," Rieger said. "State specific municipal bond mutual funds with a large percentage of Puerto Rico paper due to triple tax-exemption will have felt the pain." The S&P Municipal Bond Puerto Rico Index returned a negative 4.18% in July and negative 6.61% year-to-date.
High-yield municipal bonds also struggled in July, with the S&P Municipal Bond High Yield index returning negative 2.12% and negative 3.58% year-to-date. Within the high-yield sector, tobacco bonds led the decline, dropping 3.8% for the month and 7.12% for the year.
In a reversal, short-term bonds as tracked by the S&P Short Term National AMT-Free Municipal Bond Index returned a positive 0.27% in July, helping those bonds stay in positive territory for the year.
Corporate bonds also outperformed municipals, with investment grade corporates returning 0.68% for the month and high-yield posting a positive 1.70% for July.