After a large buying spree earlier in the week that brought yields to record lows, the tax-exempt market slowed Thursday morning and traders took a breather.
Most of the week's primary issuance had been priced, though traders waited for the last remaining deals to come Thursday.
"It's kind of slow," a New York trader said. "Buying has slowed down a bit." He added munis were trading steady.
"Bids continue to drive yields lower on munis despite a virtual consensus that over the long term our current levels are unsustainable," wrote Dan Toboja, vice president at Ziegler Capital Markets. "This week has a good amount of new issue supply, but from the deals we've seen there is still plenty of cash, and the market has held steady or tightened with the supply."
He added, "There is little direction expected from Washington with the fiscal cliff and how it relates to munis so any news that a solution is being reached may shock the fixed income markets."
In the primary market, Bank of America Merrill Lynch is expected to price $792.4 million of Miami-Dade County, Fla., aviation revenue refunding bonds, rated A2 by Moody's Investors Service and A by Standard & Poor's and Fitch Ratings.
B of A Merrill is expected to price $534.9 million of North Carolina Municipal Power Agency electric revenue bonds, rated A by Standard & Poor's.
In the competitive market, Baltimore County, Md., is expected to auction $362.6 million of general obligation bonds, rated triple-A. The four pricings consist of $193 million, $60 million, $93.1 million, and $16.5 million.
Virginia Housing Development Authority will auction $230 million of revenue bonds.
The Municipal Market Data scale climbed higher Wednesday, setting new record low yields on the 10-year and 30-year yields for the second consecutive session. The 10-year MMD yield fell two basis points to 1.47%, a record low. The 1.47% beat the previous record low of 1.49% set Tuesday. Before that, the record low yield was 1.50% set Nov. 16.
The 30-year MMD yield dropped two basis points to 2.47%, also setting a record low. It beat the previous record of 2.49% set Tuesday and 2.52% set Monday. Before Monday, the record low was 2.54% set Nov. 16.
The two-year finished steady at 0.30% for the 43rd consecutive trading session.
Treasuries were slightly weaker Thursday morning. The benchmark 10-year yield and 30-year yield each increased one basis point to 1.63% and 2.80%, respectively. The two-year was steady at 0.27%.
In economic news, real gross domestic product, increased at an annual rate of 2.7% in the third quarter and almost matched the 2.8% estimated by economists.
The third quarter GDP figure is an upward revision from the 2.0% pace in the advance estimate. GDP increased 1.3% in the second quarter.
"The upward revision to GDP is less positive than it first seems since it was more than fully driven by a larger-than-previously reported inventory build, while underlying growth in terms of real final sales or final sales to domestic purchasers was revised down slightly," wrote economists at RDQ Economics. "A rising inventory build is often a harbinger of slower growth and, at this point, we would look for a sub-2% reading on fourth-quarter growth."
The economists added, "Nonetheless, nominal GDP growth ran at 5.5% in the quarter and, if this growth rate can be sustained, it would be a sign that the Fed's easing programs are boosting nominal demand."
In other economic news, initial jobless claims fell 23,000 to 393,000 in the week ending Nov. 24. Continuing claims slipped 70,000 to 3.287 million for the week ending Nov. 17.
Economists had predicted 390,000 initial claims and 3.320 million continuing claims.
"No doubt Sandy continues to muddy the claims data but we are also entering a seasonal period where claims are more volatile and carry more noise and less signal about the labor market," RDQ economists added. "We will not, therefore, be able to put much weight on the claims data in assessing underlying economic conditions in November."