NEW YORK -- The municipal bond market was little changed this afternoon and trading activity was light, as investors were reluctant to put money to work with the potentially market-moving release of April non-farm payrolls set for tomorrow morning.
"The muni market continues to be sloppy. We continue to not have a lot of big deals, so there's cash out there out there in the market," the trader said. "Right now a lot of people are just waiting for tomorrow's number. I think there are still traders out there that have positions they'd like to move if they could, but you really can't put anything out and test it out, because the cheap bid is not there. It's sort of a game of move the deck chairs."
Activity by institutional investors was limited, but some retail investors were nibbling at bonds that are offering increasingly attractive yields, according to traders.
"There is some retail activity going on. Things have gotten cheaper on the long end, so we've been able to sell longer retail paper, which we hadn't been able to do until recently. In the first seven or eight years, however, no one is cheapening their offerings because there is so little paper around," another trader in New York said.
After weakening at the open, the Treasury market climbed back to the unchanged mark, with the yield on the 10-year note flat at 5.15%.
Economic data released this morning was mixed, as a weekly labor market indicator showed some softness but another reported showed a jump in unit labor costs.
First-time applications for state unemployment benefits rose 5,000 to a seasonally adjusted 322,000 in the week ended April 29, according to the Labor Department. The figure was far above the 310,000 level predicted by IFR Markets and above the previous week's revised figure of 317,000, originally reported as 315,000. It was the highest claims figure since Nov. 19. The four-week moving average - typically seen as a better gauge of unemployment - was 314,250, an increase of 5,250 from the previous week's revised average of 309,000, originally reported as 308,500.
Meanwhile, the Bureau of Labor Statistics reported this morning that non-farm productivity jumped 3.2% between January and March while unit labor costs increased 2.5%, according to preliminary first-quarter statistics. The Q1 productivity figure followed a revised 0.3% decline in the fourth quarter of 2005 - previously reported as a 0.5% decrease - and was above the 3.0% rise predicted by IFR Markets poll of economists. IFR's poll predicted at 1.3% increase in unit labor costs.
Dean Maki, chief U.S. economist at Barclays Capital, said he did not expect the first-quarter jump in labor costs to weigh heavily on the Federal Open Market Committee.
"I don't think they'll find this report particularly alarming," he said. "On a year on year basis, labor costs growth is still fairly subdued."
The other data released this morning could be evidence that economic recovery is maturing into a slower growth mode.
"Jobless claims did jump a little bit on the week, which by itself is not alarming, but it is a change in trend from what we've seen over the last couple weeks," he said. "It would be consistent with the idea that growth is slowing somewhat in the second quarter versus the first."
Investors tomorrow will wrestle with more closely watched labor market data, the non-farm payrolls report. Economists polled by IFR Markets forecast the economy created 200,000 jobs in April.
Maki said Treasuries could be vulnerable to sell-off if the data surprises to the up side.
"If either payroll growth is much stronger than expected or the unemployment rate falls a tenth of a percent, I would expect bonds prices to fall somewhat," he said.
The new-issue calendar is light on the negotiated side, but several moderately sized competitive deals came to market.
In the largest deal of the session, the Texas State University System Board of Regents competitively sold $140 million of system revenue bonds to First Albany Capital with a true interest cost of 4.6992%. The bonds mature from 2007 through 2031, with a term bond in 2034, and are callable at par in 2016. Yields range from 3.7% with a 4.25% coupon in 2008 to 4.67% with a 5% coupon in 2034. Bonds maturing in 2007, 2014 through 2016, and 2022 through 2026 were not re-offered. Portions of the deal are insured by Financial Security Assurance. Standard & Poor's rates the unenhanced bonds A-minus.
The Florida Education System sold $58 million of university system improvement revenue bonds. Lehman Brothers bought the deal and reoffered bonds to yield from 4.42% in 2021 to 4.67% in 2026. The underwriter did not reoffer bonds of 2007 to 2020 and 2030. Financial Guaranty Insurance Corp. insured the bonds, which have underlying ratings of Aa2 by Moody's Investors Service, and AA by Standard & Poor's and Fitch Ratings. Bonds are callable at 101 in 2015, declining to par in 2016.
And Louisiana's Sales Tax District No. 3 of the Parish of St. Tammany will sell $50 million of sales tax bonds at 7 p.m., EDT. The bonds, insured by CIFG Assurance North America, Inc., mature from 2007 through 2031, and are callable at 101 in 2016, declining to par in 2018. Standard & Poor's rates the underlying credit A-plus.
Visible Supply
The Bond Buyer's 30-day visible supply fell today by $1.21 billion to $5.259 billion. The total is comprised of $1.974 billion of competitive deals and $3.285 billion of negotiated bonds.
Previous Session's Activity
The Municipal Securities Rulemaking Board reported 39,800 trades yesterday of 16,246 separate issues for volume of $26.21 billion. Most active was insured State University of Iowa 4.5s of 2016, which traded 80 times at a high of par, and a low of 98.
