The tax-exempt market was steady Thursday morning as traders said the market has been slow this week with August vacations.
Traders noted while munis traded flat in the morning, there is a prevailing weaker tone overall during the past few trading sessions. Many traders were surprised how yields have backed up in the past few sessions given Aug. 1 reinvestment money just came due and new issuance has not been overwhelming.
“It’s not necessarily weaker this morning, but it’s slow,” a New York trader said. “There are a lot of vacations and people are holding off until September.”
In the primary market, the remaining large deals are expected to price. Citi is scheduled to price $630 million of New Jersey Economic Development Authority special facility revenue bonds for the Continental Airlines Project. The bonds are rated B3 by Moody’s Investors Service and B by Standard & Poor’s.
Bank of America Merrill Lynch is expected to price for institutions $225 million of Metropolitan St. Louis Sewer District revenue bonds, rated Aa1 by Moody’s, AAA by Standard & Poor’s, and AA-plus by Fitch Ratings.
Morgan Keegan is expected to price $203.9 million of Mississippi unlimited tax general obligation refunding bonds, rated Aa2 by Moody’s, AA by Standard & Poor’s, and AA-plus by Fitch.
In economic news, the U.S. international trade deficit fell 10.7% in June to $42.9 billion from a revised $48 billion deficit in May.
The June deficit came in less than the expected $47.5 billion and was a result of $185 billion of exports and $227.9 billion of imports.
“The narrowing of the trade gap in June - driven in part by a 2.9% jump in the volume of exports – looks to add significantly to the revision to second-quarter real GDP growth,” wrote economists at RDQ Economics. “Based on what we know at this point, second-quarter growth looks likely to be revised up from 1.5% to somewhere in the range of 2% to 2.25%. Exports have maintained a double-digit growth pace in real terms over the last three months, while imports have contracted and, as a result, trade is providing a cushion to the slowdown in U.S. demand growth.”
In other economic news, seasonally adjusted initial jobless claims fell 6,000 to 361,000 for the week of Aug. 4.
The drop in claims beat expectations by analysts who had predicted a 2,000 increase.
Continuing claims rose 53,000 to 3.332 million for the week of July 28 – the highest level since the week of March 24 when claims were 3.349 million.
“The initial jobless claims data over the last three weeks hint at a slowing in the rate of gross job losses – and thus higher net job creation – compared to the April through June timeframe,” wrote RDQ economists. “Combined with the pickup in job creation shown by July payrolls and the ADP report and the increase in the rate of private-sector job openings in June to the highest level since the second quarter of 2008, the labor market is suddenly not looking quite so moribund.
”The analysts added, “If the employment report for August shows half decent jobs growth, the prospects for a new round of QE at the meeting would diminish significantly.”
On Wednesday, the 10-year Municipal Market Data yield finished steady at 1.75%. The two-year finished steady at 0.29% for the 10th consecutive session. The 30-year yield rose two basis points to 2.93%.
Treasuries were much weaker Thursday morning. The benchmark 10-year yield jumped six basis points to 1.71% while the 30-year yield increased two basis points to 2.77%. The two-year was steady at 0.29%.