The municipal market woke up Thursday with a glance toward a large portion of the week's new issue supply set to arrive.

But it was news about a report by Moody's Investors Service that placed on watch for downgrade most of Puerto Rico's debt that has grabbed the market's attention, a trader in New Jersey said.

"Overall, the market's holding firm, except for Puerto Rico, which is sliding a little bit, due to the recent under-review from Moody's," he said. "Without a doubt, it's having an effect."

Puerto Rico paper is off a good 15 basis points from yesterday's trading levels, he added.

"The news has affected COFINAs, but is generally affecting all of them. It's hard to get bids," he said.

Muni yields have held their levels, though, according to the trader and one market scale read.

In the primary market, traders are also paying close attention to the large deals expected to arrive.

This includes the pricing of $485 million Morgan Stanley-led utility debt securitization taxable bond issue for the Long Island Power Authority, the tax-exempt portion of which arrived Wednesday.

A few large deals will arrive in the competitive market, as well, including two for the Empire State Development Corp. for more than $650 million.

"It's the end of the year, and people are being a little cautious," the trader added. "The primary calendar's relatively large and people are focused more on that. For the most part, deals are going OK. There's a lot of product; that's making the secondary wish-washy."

Yields on the Municipal Market Data triple-A scale started the day's session where they ended Wednesday's: unchanged.

Muni yields ended Wednesday flat, with the benchmark triple-A 10-year yield at 2.72%. The 30-year increased two basis points to 4.16%. The two-year held at 0.33% for a 19th straight session.

Yields on the Municipal Market Advisors benchmark triple-A scale ended unchanged throughout the curve. The 10-year ticked held at 2.75%. The 30-year yield remained at 4.39%, while the two-year held at 0.36%.

Treasuries started Thursday's session somewhat weaker. The benchmark 10-year yield has risen two basis points to 2.87%, while the 30-year yield has increased three basis points to 3.88%. The two-year is steady at 0.31%.

In economic news, the Commerce Department reported Thursday that U.S. retail sales for

November gained 0.7%, ex autos rose 0.4%, and ex autos and gas climbed 0.6%. Collectively, these numbers beat expectations and showed strength.

However, December remains most important for determining sales totals as most selling is done closer to Christmas. So the strength seen in these early numbers might be borrowed from December.

In other news, the Labor Department reported Thursday that initial claims for U.S. state unemployment leaped 68,000 to 368,000, an increase far higher than estimated in the week of Dec. 7.

Economists predicted claims of 335,000, which would have represented a rise of 37,000 from the previously reported level of 298,000 for the week of Nov. 30. The Labor Department revised initial claims that week up 2,000 to 300,000.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.