Municipal bonds firmed Thursday morning following a report by the government that showed persisting economic woes.
Yields on municipal bonds fell as much as four basis points, according to Municipal Market Data, after the Labor Department announced jobless claims climbed 14,000 in the week ended February 22.
"No question that strengthening yields on munis are related to this, people are looking for lower risk and income given some of this data uncertainty," Brian Rehling, chief fixed income strategist at Wells Fargo Advisors, said in an interview. "The data is not great right now. Unemployment claims climbed last week to about a one-month high, and that's been a trend for the last couple of months."
Yields on bonds maturing from 2022 to 2032 fell the most, as much as four basis points, while those maturing in 2019 and 2021 fell as much as three basis points. The rise in the value of bonds was ubiquitous throughout the yield curve.
Initial jobless claims climbed 14,000 to 348,000 in the week ended February 22, 4% higher than the 3335,000 figure expected by economists polled by Thomson Reuters. Claims for the week ended February 15 were revised to 334,000 from the 336,000 initially reported.
Continuing jobless claims were 2.964 million in the week ended February 15, compared with 2.980 million estimated by economists.
"They're clearly on the path to taper in March," Rehling said. "But going after that, if the numbers continue to disappoint, then yes absolutely it could pause if inflation is below their targets."
The Federal Reserve announced in December it would slow its bond purchasing program by $10 billion a month, then again in January it announced another $10 billion a month reduction, bringing monthly asset purchases to $65 billion. Sauntering economic growth has led some in the market to believe that a slowdown in the taper could be possible.
"I think it would be a matter of pausing," Rehling said. "I don't think cutting it back from $ 10 billion to $5 billion would be likely but they could pause it if this data persists. I'm looking for interest rates to be relatively well-contained."
Rehling said he expects interest rates on 10-year maturities to remain between 2.50% and 2.80% for "quite a while."
Treasury yields also slid Thursday morning, with the 30-year falling two basis points to 3.61%, and the 10-year dropping one basis point to 2.66%. The two-year yield was up one basis point to 0.34%.
