Investors are conflicted over the impact Friday's employment situation report will have on the municipal bond market.
A trader in New York said Treasuries' dramatic reaction to Tuesday's ISM manufacturing index report means if a strong employment situation number is shown, Treasuries will sell-off again and it will bleed into the municipal market.
"Now that there are not as many headlines about global crises coming out, the market is paying more attention to the economic data being reported," the trader said. "It was always strange, rates being so low when the economy is becoming stronger."
A second trader in New York agreed, saying even though Treasuries had strengthened by the end of the day on Wednesday after it was announced Russian President Vladimir Putin was outlining cease-fire plans with a Ukraine leader, Treasury yields were still notably higher than they were last week.
"If they hike up anymore, they will drag munis with them," he said. "Low supply has kept munis in check so far, but supply should pick up next week and more people will be back at their desks."
A trader in Virginia said a sell-off in munis is possible if a strong employment number is reported, but he doubts it will happen.
"I don't think it will happen unless supply starts to grow, it's hard to justify some kind of massive sell-off," he said.
The largest deal scheduled for auction on Thursday is the three-part $226.6 million Metropolitan Transportation Authority revenue variable rate bond issuance, according to TM3. The bonds earned ratings of A2 from Moody's Investors Service, AA-minus from Standard & Poor's and A from Fitch Ratings.
The other sizable deal expected on Thursday is the $117 million San Mateo County Community College District general obligation refunding bonds. The bonds earned triple-A ratings from Moody's and S&P, ratings that led market participants to believe the deal will come very aggressively.
Traders said they believe the bonds will be expensive because they are a California credit, and portfolio managers are trying to get California names on their portfolio. The deal is also appealing because it is not as frequent an issuer as other California issuers like Los Angeles, San Francisco Bay Area Toll Authority, or California state itself.
Morgan Stanley is scheduled to price the bonds.
