Munis weakened Thursday afternoon as the jobless claims report added to sentiment that the economy is improving.
Claims rose to 320,000 for the week, on the low end of what economists expected and down from a month ago, when there were 334,000 claims. The figure marks a 5,000 jump from 315,000 the previous week, according to the Bureau of Labor Statistics.
"If claims go down, that will be positive to the economy as a whole, and lead to higher rates," said a trader in the West Coast.
The four-week moving average dropped to 327,000 from 334,000 this time last month, the report said.
An increase in interest rates may come six months after the end of quantitative easing, perhaps in early 2015, Federal Reserve Chair Janet Yellen said Wednesday. Many analysts predicted that the Fed wouldn't raise interest rates until mid- to late- 2015. Treasury yields spiked following Yellen's speech. The Fed also said it will cut its asset purchases by $10 billion a month, starting April 1.
The jobless claims numbers were anticipated by some traders, who said that the report added to concerns that developed Wednesday after hearing Yellen's remarks.
"I did not think claims would affect the market that much, but an early read on the MMD scale showed there are significant cuts, which I'm surprised by," Bernard Garruppo, chief executive officer at Granite Springs Asset Management, said in an interview. "But personally I think that has a lot to do with what our Fed chairwoman said yesterday."
Treasuries yields jumped as much as eight basis points on the 10-year benchmark, ending Wednesday on a weak note.
"The Treasury market may be affected by the tapering a bit, and munis tend to follow Treasuries, but it won't directly affect the muni market," said a trader based on the West Coast.
The spread between yields on 30-year and 10-year Treasury bonds fell to 88 basis points, the lowest since May 24, 2010, according to Thomson Reuters data.
Treasuries have stabilized since then, with the 10-year and 30-year bonds softening by two one to basis points to 2.78% and 3.66%, respectively. Two-year notes remained steady at 0.44%.
Last week's $11.4 billion supply including the $3.5 billion Puerto Rico deal was readily handled, but there's not a lot of new issues this week for investors to focus on. The market is weaker, but it is beginning to steady right back to where it was before the Federal Reserve's announcement.
The state of Wisconsin plans to issue $393.61 million of transportation revenue and refunding bonds Thursday, the largest deal in the negotiated market. The bonds are expected to carry a Aa2 rating from Moody's Investors Service, and AA-plus from both Standard and Poor's and Fitch Ratings, according to Thomson Reuters. Jefferies is lead underwriter.
The New York State Environmental Facilities Corp.'s $347.385 million of state clean water and drinking water revolving fund revenue bonds are now free-to-trade. The issuance was brought to market on Wednesday with Goldman Sachs & Co. as the managing underwriter.
Yields ranged from 0.15% with a 5% coupon maturing in 2015 to 3.64% with a 5% coupon maturing in 2034. The bonds are callable at par in in 2024, and received ratings of Aaa from Moody's, AAA from S&P and AA-plus from Fitch.
Municipal bonds maturing in four to five years plunged in value Thursday afternoon, sending yields up by as much as 11 basis points. Longer term bonds also softened, according to Municipal Market Data.
