Munis softened Thursday morning, losing some ground to Treasuries as the government bonds steadied after weakening Wednesday.
The Municipal Market Advisors' AAA benchmark yields climbed three basis points on the 30-year to 4.03% and six basis points on the 10-year to 2.52% Wednesday. The market outperformed Treasuries after Federal Reserve Board Chair Janet Yellen hinted interest rates could climb sooner than some expected.
"Treasuries are selling off, so clearly the market feels like the economy is better than expected," said a trader based in Pennsylvania. "These things are short term in nature, so I don't know if it will mean anything a week from now."
Yellen said Wednesday that interest rates may increase in early 2015, sending Treasuries yields as much as eight basis points higher on the 10-year benchmark, ending the day on a weak note. The market, and most members of the Federal Reserve Board, have predicted the first raise in rates would be in late 2015.
"The Treasury market may be affected by the tapering a bit, and munis tend to follow Treasuries, but it won't directly affect the muni market," said a trader based on the West Coast.
The spread between yields on 30-year and 10-year Treasury bonds fell to 88 basis points, the lowest since May 24, 2010, according to Thomson Reuters data.
Treasuries have stabilized since then, with the 10-year benchmark sliding as much as one basis point in the morning to 2.77%. The 30-year yield and the two-year note were unchanged.
The state of Wisconsin plans to issue $393.61 million of transportation revenue and refunding bonds Thursday, the largest deal in the negotiated market. The bonds are expected to carry a Aa2 rating from Moody's Investors Service, and AA-plus from both Standard and Poor's and Fitch Ratings, according to Thomson Reuters. Jefferies is lead underwriter.
The New York State Environmental Facilities Corp.' $347.385 million of state clean water and drinking water revolving fund revenue bonds are now free-to-trade. The issuance was brought to market on Wednesday with Goldman Sachs & Co. as the managing underwriter.
Yields ranged from 0.15% with a 5% coupon in 2015 to 3.64% with a 5% coupon in 2034. The bonds are callable at par in in 2024, and received ratings of Aaa from Moody's, AAA from S&P and AA-plus from Fitch.
Short-term muni bond yields jumped two basis points Thursday morning, intermediate bonds inched up to one basis point and bonds with long-maturities held steady, according to Municipal Market Data.
