Municipal bonds weakened on the long end Thursday morning and market participants said Treasuries rather than an increase in initial jobless claims were moving the market.
Yields on the intermediate and long part of the curve climbed as much as one basis point. The short-end of the curve was steady, according to the Municipal Market Data's triple-A scale.
"I don't put a lot of weight into the frequent numbers," said a trader based in New York. "They don't really pertain to what's driving yields in the muni market. I think it has more to do with the global economy. People are getting ready to jump into Treasuries just in case. There's a seasonal tendency to get liquid in some markets and that causes volatility. It's part of the sell in May, go away effect."
Jobless claims increased 28,000 to 326,000 in the week ended May 17 and claims for the previous week ticked up to 298,000 from the 297,000 initially reported. The four-week average of initial claims fell 1,000 in the week to 322,500.
Investors speculate that economic data is not directly affecting the market, though the movement of Treasuries may be more of a contributing factor.
"Treasuries are a bit off causing the market to weaken," a trader on the West Coast said. "It's a combination of a rally that went too far too fast and sticker shock. The levels are getting too high and buyers are starting to balk a bit. Issues are struggling to get placed. The market is starting to consolidate."
Treasuries were mixed Thursday morning, with 30-year yields slipping one basis point to 3.41%, while the two-year note inched up one basis point to 0.36%. The 10-year benchmark was unchanged at 2.54% from Wednesday's market close.
Janney predicts issuance will decrease in 2014 compared to 2013 and will continue to drop further in the next one to three years.
Some of the factors contributing to this steady decline of supply include: "higher interest rates, use of direct bank loans, austerity measures, less flexibility in spending, political and voter attitudes, and the lack of broad public policy supporting infrastructure spending," according to the Janney Municipal Bond Market Monthly.
The bulk of issuance came earlier in the week leaving Thursday's market supply light with only one negotiated deal over $100 million expected to price.
"Volume is surely low," the West Coast trader said. "Most of the deals came earlier in the week. It's somewhat of a holiday-shortened week so there's nothing that's going to add to the balance of the week."
Stifel Nicolaus will bring $230.9 million of Cuyahoga County, Ohio, certificates of participation to the market Thursday. The deal received an Aa3 rating from Moody's Investors Service and an AA-minus from Standard & Poor's.
There are no deals over $100 million scheduled to enter the competitive market Thursday.
