After posting gains throughout the week, the tax-exempt market took a pause Thursday morning.
Municipal bond traders said the market was trading flat to slightly lower after four consecutive sessions of gains. Treasuries were also lower, helping to reverse the firm tone in munis.
"Munis are sideways or maybe down a little," a New York trader said. "Some deals are hitting down bids."
The primary market is expected to be somewhat quiet Thursday as the majority of the week's largest deals priced earlier.
On Wednesday, the Municipal Market Data scale ended higher for the fourth consecutive trading session. The 10-year and 30-year yields fell three basis points each to 1.65% and 2.69%, respectively. The two-year finished steady for the second session at 0.33%.
The 10-year yield still remains 18 basis points above its record low of 1.47% set Nov. 28. The 30-year yield trades 22 basis points above its record low of 2.47% set Nov. 28.
Treasuries were lower after a risk-on trade coming from generally positive economic data. The benchmark 10-year yield and the 30-year yield spiked up five basis points each to 1.87% and 3.06%, respectively. The two-year yield increased two basis points to 0.27%.
In economic news, housing starts jumped 12.1% in December to a seasonally adjusted 954,000. Building permits in December rose 0.3% to a seasonally adjusted 903,000.
Housing starts far exceed analysts' expectations of 890,000 while permits came right as expected at 903,000.
"Housing construction ended the year on a strong note as robust gains in both the single- and multi-family sectors pushed housing starts to their highest seasonally-adjusted monthly level since June 2008," wrote economists at RDQ Economics. "Building permits edged higher as a small gain in single-family permits more than offset a decline in the more volatile multi-family sector."
They continued, "This report provides further evidence that the turnaround in housing is real and that housing construction will add moderately to growth in 2013."
In other economic news, seasonally adjusted initial jobless claims fell 37,000 to 335,000 for the week ending Jan. 12, its lowest level in five years. Economists expected a 370,000 level.
"The Labor Department warned that seasonal adjustment issues had a hand in the 37,000 drop in jobless claims in the latest week and, since turn-of-the-year volatility is quite common for these data, we cannot read too much into the latest report," RDQ economists wrote. "The drop in claims comes after four consecutive weekly increases and the four-week average of claims is little different than the reading for December as a whole."
They added that, "Having taken a pinch of salt, however, we would suggest that the trend in claims generally show no pickup in layoff activity around the turn of the year."
In more economic news, the Philadelphia Fed Index dropped to negative 5.8 in January from a positive 4.6 in December. Economists had expected a positive 6.0 reading for the index.
"This is a disappointing and somewhat weak start to manufacturing activity in the Philadelphia Fed district with declines in orders and employment and virtually no growth in shipments," RDQ economists wrote. "The price readings were mixed as prices received eased slightly for the first time since June of last year but prices paid increased for the 42nd consecutive month."