NEW YORK – The tax-exempt market continued to struggle Thursday morning as traders continued to use “tired” and “lethargic” to describe this week’s muni market.

“We ran out of gas yesterday and had quite a bit of underperformance,” a New York trader said. “Even though Treasuries came back, we were off 10 basis points at some points [across the curve]. We are rejecting the all-time low yields.”

The trader added that with a decent amount of supply this week, munis struggled. “There were some multi-hundred million dollar deals but with yields where they are, we are starting to reach a fatigue point.”

And so far this morning, the tone has been the same. “Treasuries are higher but we are not seeing a stronger bid. Yields are starting to run up again from these absolute levels and struggling to find buyers.”

Munis were steady Thursday morning, according to the Municipal Market Data scale. On Wednesday, the 10-year yield spiked up six basis point to 1.80% while the 30-year yield jumped four basis points to 3.11%. The two-year yield remained steady at 0.31% for the 21st consecutive trading session.

The Treasury yield curve flattened. The two-year yield rose two basis points to 0.31% while the 30-year yield fell three basis points to 2.87%. The benchmark 10-year yield was steady at 1.76%.

In the primary market, Morgan Stanley is expected to price $303.7 million of North Hudson Sewerage Authority, N.J., taxable and tax-exempt revenue bonds, rated A-minus by Standard & Poor’s and A by Fitch Ratings.

Wells Fargo Securities is expected to price $160.1 million of Chatham County, Ga., Hospital Authority revenue bonds, rated Aa2 by Moody’s Investors Service and AA by Standard & Poor’s.

In economic news, seasonally adjusted initial jobless claims held steady at 370,000 for the week ending May 12 while continuing claims rose 18,000 to 3.265 million for the week ending May 5.

The initial claims were higher than the 365,000 estimated by economists and the 3.265 million continuing claims came in above the 3.240 million economists had expected.

“The unemployment claims data continue to suggest that the early-to-mid April rise in initial claims was something of a hiccup,” wrote economists at RDQ Economics. “Over the last four weeks, the four-week average of claims has been only 2,000 higher than the average for the first four months of the year – a period when payroll growth averaged about 200,000 per month. The jobless claims data do not point, therefore, to a pickup in layoffs in May relative to the first four months of the year.”

The economists added, “Putting it together, rising job openings and relatively flat new filings for unemployment benefits do not point to any underlying slowdown in job creation and we would expect, therefore, a pickup in May from April’s rather subdued pace of employment growth.”

In other economic news, the Philadelphia Fed Index fell to negative 5.8 in May from a positive 8.5 in April, the first negative reading in eight months.

The index came in way below the positive 10.0 reading economists had expected.

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