Market participants did not react to the first quarter's gross domestic product number and are focusing on the employment situation report scheduled for Friday.
The report showed that GDP rose by a mere 0.1% in the first quarter of 2014, compared to a 2.6% gain in the fourth quarter of 2013. GDP growth in the first quarter was less than the market consensus which had predicted GDP would rise about 1.1%.
"The GDP and the employment number have pretty big implications on FOMC actions," a trader in New York said. "Employment is a better indicator though because the Fed has linked its interest rate policy to the employment number, people will look to that to see what's going to happen."
Final sales of domestic demand increased by 0.7%, down from a 2.7% rise in the four quarter.
"The employment number is the key number to watch," a second trader in New York said.
Economists attribute the meager GDP growth to adverse weather conditions in the first three months of the year, which they believe slowed economic production.
"Unemployment (6.6% exp.) potentially will shed more insight into the degree of strength to the economy," Kevin Horan, director of fixed income indices at Standard & Poor's Dow Jones Indices said in a report released on Monday.
While investors are focusing on the employment number as an indicator of how quickly the economy is recovering, market participants do not see it having a strong sway over the municipal market or the Federal Reserve's decision on when to raise rates.
"Unless those numbers break us out of the range we have been in, anything within that range will not have a dramatic effect on munis," the second trader in New York said.
A trader in Chicago said he does not see the employment number having a heavy impact on the municipal market, or motivating the Fed to raise rates anytime soon.
The first trader in New York though thinks the report will introduce a bit of volatility into the market, but that its effect will be mitigated by investors turning to U.S. fixed income for safety because of the crisis in the Ukraine.
"I mean, there's going to be some volatility that will push yields higher," he said. "But then there's the Russia-Ukraine safety issue. Where yields go depends on the most recent headline winning at the time. They will go a little bit up, a little bit down."
A two-pronged California Education Facilities Authority deal totaling $415 million of revenue bonds priced Wednesday. Yields on $279 million of revenue bonds marketed by Goldman Sachs & Co. were at 3.625% with a 5% coupon in 2045. There is a make whole call option at MMD minus 25 basis points.
Yields on $125 million of revenue bonds managed by Wells Fargo Securities were at 1.75% with a 5% coupon in 2021. There is a make whole call option. The deal is rated Aaa by Moody's Investors Service, and AAA by both Standard and Poor's and Fitch Ratings.
"There are a couple California deals coming this week, but we are not looking at them," a trader in Pennsylvania said.
Raymond James Financial will price $107.7 million of refunding bonds and tax and waterworks system surplus revenue certificates of obligation for the city of Lubbock, Texas. The deal is received an Aa2 rating from Moody's, and AA-plus by both Standard and Poor's and Fitch Ratings.
In the competitive market, JP Morgan won the bid for $199.1 million of North Carolina limited obligation refunding bonds. The deal is rated AA1 by Moody's, and AA-plus by both S&P and Fitch.
Citigroup Global Markets brought $121.7 million of unlimited tax refunding bonds to the market Wednesday for the North East Independent School District of Texas. Yields ranged from 0.21% with a 2% coupon maturing in 2012 to 3.49% with a 4% coupon in 2033. The bonds are callable at par in 2032 and are rated Aaa/Aa1 by Moody's and AAA/AA-minus by S&P.
Munis were steady Wednesday afternoon, with yields on bonds maturing beyond 2035 strengthening by as much as one basis point. Yields on the short-end of the curve held steady, according to the Municipal Market Data triple-A scale.
Treasuries strengthened Wednesday afternoon, with the 30-year yields and the 10-year benchmark falling four basis points each to 3.46% and 2.66%, respectively. The two-year notes slipped two basis points to 0.43%.
