Tax-exempts turned to the competitive market Wednesday as New Jersey is expected to price a high-grade deal following Tuesday's negotiated junk bond offering of $1.2 billion Iowa fertilizer bonds.

Traders said the $350 million New Jersey deal should get decent demand, continuing the momentum from Tuesday's rally. The New Jersey general obligation bonds are rated A1 by Moody's Investors Service and AA-minus by Standard & Poor's and Fitch Ratings.

Trading opened up firm Wednesday morning outside 10 years, a New York trader said. "Plus it's May 1 so a lot of coupon payments are coming in." Inside 10-years was trading mostly steady.

The competitive market is also expected to get $221.7 million of University of Illinois Board of Trustees revenue bonds.

In the negotiated, Citi is expected to price $218 million of Louisiana Local Government Environmental Facilities sub lien revenue bonds for the East Baton Rouge Sewerage Commission Project. The bonds should include $126 million of tax-exempt bonds and $92 million of SIFMA floaters. The bonds are rated A1 by Moody's, A-plus by Standard & Poor's, and AA-minus by Fitch.

Raymond James is scheduled to price $178.4 million of triple-A rated Mansfield Independent School District, Texas, bonds guaranteed by the Permanent School Fund program. The underlying ratings are Aa2 by Moody's, AA by Standard & Poor's, and AA-plus by Fitch.

Municipal bond scales ended as much as three basis points stronger Tuesday.

Yields on the Municipal Market Data 5% triple-A GO scale ended as much as three basis points lower. The 30-year yield slid three basis points to 2.84%. The 10-year closed unchanged for the third trading session at 1.69% and the two-year finished steady at 0.29% for the 18th session.

Yields on the Municipal Market Advisors 5% scale ended as much as two basis points lower. The 30-year yield dropped two basis points to 2.98%. The 10-year finished unchanged at 1.75% for the third session and the two-year was flat at 0.32% for the 18th session.

Treasuries posted gains Wednesday morning after worse-than-expected headline economic news was released. The benchmark 10-year yield slid four basis points to 1.63% and the 30-year yield dropped five basis points to 2.83%. The two-year yield fell one basis point to 0.21%.

In economic news, the ISM manufacturing index slipped to 50.7 in April from 51.3 in March. Economists had expected a drop to 51.0 for the index.

"We view this report as better than expected and the details paint a slightly brighter picture for the outlook for manufacturing than the headline index," wrote economists at RDQ Economics. "The good news was that order growth picked up slightly, delivery delays lengthened a little, and inventories were liquidated at a faster rate than in March. On that note, the entire decline in the index from March to April was due to inventories, which is scored as a negative for current activity in this report but arguably is a positive for future activity."

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