The tax-exempt market continued to see strong gains Thursday morning and there were no signs of trading quieting down.
"They are still buying," a New York trader said.
Others agreed. "The market is up and away," a New Jersey trader said. "A week later everything is hunky-dory in muni world," he said, referring to the losses seen after the Fed announced QE3.
"There was a massive sell off a week ago and everything has snapped backed these last three trading days. Everything that was lost last Friday has been gained back and then some."
He added the primary market set the tone Tuesday and Wednesday while the secondary market is busy Thursday. "It's been so busy in the secondary today I haven't been focused on the primary. But the bottom line is new issues have been received well. The primary priced and was well received and now the bid side is up a good nickel."
In the primary market Thursday, Siebert Brandford Shank & Co. is expected to price for institutions $570 million of Connecticut general obligation and GO refunding bonds, rated Aa3 by Moody's and AA by Standard & Poor's, Fitch, and Kroll Bond Rating Agency.
In the first retail order period Tuesday, the first series, $175 million of GO SIFMA index bonds, were not offered.
Yields on the second series, $325 million of GOs, ranged from 1.79% with 2%, 3%, and 4% coupons in a split 2020 maturity to 3.15% with 3.125% and 4% coupons in a split 2032 maturity. Portions of bonds maturing between 2024 and 2032 were not offered for retail. The bonds are callable at par in 2022.
Bonds in the third series, $70 million of GO refunding bonds, yielded 0.36% with 3% and 4% coupons in 2014 and 0.48% with a 4% coupon in 2015. Bonds maturing in 2013 were offered via sealed bid.
Citi is expected to price for institutions $550 million of Omaha, Neb., Public Power District bonds rated Aa1 by Moody's and AA by Standard & Poor's.
Morgan Stanley is expected to price $288.7 million of Dallas and Fort Worth International Airport joint revenue refunding bonds, rated A1 by Moody's and A-plus by Standard & Poor's and Fitch.
Bank of America Merrill Lynch is expected to price $253.4 million of Honolulu, Hawaii, wastewater system revenue bonds, rated Aa2 by Moody's and AA-plus by Fitch.
On Wednesday, the 10-year Municipal Market Data yield and the 30-year yield each fell four basis points to 1.86% and 2.99%, respectively. The two-year closed at 0.29% for the 39th consecutive session.
The gains pushed muni yields back down to levels last seen on Sept. 13, erasing losses made over the past week.
Treasuries were strong in Thursday morning trading following a mostly steady session Wednesday. The benchmark 10-year yield and the 30-year yield plunged five basis points each to 1.73% and 2.92%, respectively. The two-year yield fell one basis point to 0.26%.
In economic news, initial jobless claims fell 3,000 to 382,000 for the week ending Sept. 15, beating analyst expectations of 372,000. Continuing claims fell 32,000 to 3.272 million for the previous week.
"The four-week average of claims has drifted higher since early August, which does not suggest a pickup in the pace of payroll growth in September," wrote economists at RDQ Economics. "However, the rise in claims at this point does not imply a significant pickup in layoffs either. We would argue that claims have been moving largely sideways through much of 2012 after falling fairly steadily for 2.5 years."
In other economic news, the Philadelphia Fed manufacturing index came in at negative 1.9 in September versus a negative 7.1 in August. Economists had expected a negative 4.0 reading for the index.
"Manufacturing continues to struggle according to this report but the data are generally less bleak than we feared," the RDQ economists wrote. "Although we saw a very sharp decline in shipments in September, expectations for shipments six-months ahead jumped to their highest level since January as did expectations for new orders."
They added, "These sharp improvements in expectations make this report difficult to interpret. For now, we are sticking to our thesis that manufacturing will struggle in the coming months but that the overall economy will skirt recession provided Congress and the administration act on the fiscal cliff before the end of the year. At this point, we would expect another sub-50 reading on manufacturing ISM for September."