Trading slowed on Thursday as market participants prepared for Friday's employment situation report.
"There is a lot of light trading, trading feels somewhat one off," a trader in Dallas said. "There is a great deal of anticipation going into tomorrow's job report."
Investors are concerned about the report because if it is extremely positive, it might encourage the Federal Reserve to escalate its monthly tapering or move up the first increase in interest rates.
"The employment report tends to be the one economic number that has the greatest chance to move the market," a trader in New York said.
The report is particularly critical because the Fed has said severe weather in January and February may have distorted some data, making the numbers appear weaker than they are.
"As the tough weather starts to go away, the numbers we are getting now indicate whether the economy shows strength or is still mediocre," a trader in New York said.
The municipal market rebounded Thursday after weakening on Wednesday, following a sell-off in Treasuries. By Wednesday's close for the eight-year bonds rose two basis points and bonds maturing from nine to 30 years grew by three basis points.
On Thursday yields for nine- to ten-year bonds dropped up to one basis point, and on the long-end yields on 23-to 30-years fell as much as two basis points.
"There is actually a general lack of activity, flows are up and not much secondary activity at all," a trader on the west coast said. "It could be people holding off for tomorrow's number."
The largest deal of the week, a two-fold University of California deal totaling about $968 million of tax-exempt and taxable bonds, was priced Thursday. Wells Fargo Securities priced the $557 million of tax exempt bonds at yields ranging from 0.15% with a 4% coupon in 2015 to 4.21% with a 5% coupon in 2049. The bonds mature serially from 2017 to 2034, with terms in 2034, 2044 and 2049. The bonds are callable at par in 2024.
"A year and a half or two years ago, California spreads were much wider," the trader in New York said. "Those spreads really tightened, which is an indication of a better perception and reality of California's improved credit quality."
Goldman Sachs & Co is the lead underwriter for the taxable bonds, while Wells Fargo is the joint bookrunner. The deal was priced at par to yield from 0.15% in 2015 to 4.765% in 2044. The deals are rated Aa2 by Moody's Investors Service and AA by Standard and Poor's.
"If you want a California credit with good credit quality, this deal will probably suit your needs," the trader in New York said.
Yields for munis with one-to three-year maturities were steady, and for five-to-six years rose one basis point.
The Treasury yield for the two-year note was 0.46%, the 10-year was 2.79% and the 30-year was 3.62%.
