Coming off the heels of a fairly well-received $700 million Maryland general obligation deal, the tax-exempt market focused Thursday on what could be the second largest deal of the week.

New York State is expected to auction $548.2 million of general obligation bonds in three pieces: $326.1 million, $174.1 million, and a taxable deal for $48 million.

And traders said all eyes were on the state. "The New York State deal is going off and that's what people are looking at," a New York trader said."

Outside that deal, the market was still weaker, following Treasuries, this trader added.

Beyond the New York competitive deal, the remainder of the primary market is expected to price. JPMorgan should price $356.8 million of Maryland Health and Higher Education Facilities Authority bonds for the University of Maryland Medical System, rated A2 by Moody's Investors Service, A-minus by Standard & Poor's, and A by Fitch Ratings. The bonds include $241.8 million of tax-exempt revenue bonds and $115 million of taxable bonds.

JPMorgan is also expected to price $270 million of University of Massachusetts Building Authority project revenue bonds, rated Aa2 by Moody's, AA-minus by Standard & Poor's, and AA by Fitch. The issue includes $198.4 million of tax-exempt bonds and $71.5 million of taxable bonds.

Morgan Stanley is expected to price $200.2 million of Nevada limited tax GOs.

Overall, municipal bond market scales ended weaker Wednesday for the third straight session.

Yields on the Municipal Market Data triple-A GO scale ended as much as seven basis points higher. The 10-year yield jumped seven basis points to 1.90% while the 30-year yield increased six basis points to 3.00%. The two-year closed at 0.31% for the 12th straight session.

Yields on the Municipal Market Advisors 5% coupon triple-A benchmark scale closed as much as six basis points higher. The 10-year and the 30-year yield jumped five basis points each to 1.90% and 3.06%, respectively. The two-year was steady at 0.33% for the seventh session.

Treasuries were weaker for the fourth straight session this week. The benchmark 10-year yield and the 30-year yield jumped three basis points each to 1.97% and 3.18%, respectively.

In economic news, the U.S. international trade deficit was $44.4 billion in January, up 16.5% from the $38.1 billion deficit in December.

The deficit came in bigger than the $42.6 billion estimated by economists and resulted from $184.5 billion of exports and $228.9 billion of imports.

"The widening of the trade gap in January in real dollar terms points to a small drag at this point on GDP growth in the first quarter," wrote economists at RDQ Economics. "However, this drag is no larger than we have factored into our forecast for first-quarter growth and is entirely due to a widening in the real petroleum trade gap, which runs counter to an improving trend on domestic oil and gas production. We see nothing here to change our view that real GDP in the first quarter is on track to grow by 2% to 2.5%."

In other economic news, initial jobless claims fell 7,000 to 340,000 for the week ending March 2, falling below the 355,000 expected by economists.

"Although we await the new seasonal adjustment factors for 2013, which will be important to see if the claims picture survives this revision, the decline in the four-week average of claims below the 350,000 mark is an encouraging sign for job growth and the economy," RDQ economists wrote. "We maintain that the problem with job creation is not the level of layoffs but the reluctance of companies to hire new employees."

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