The municipal market shouldered through a poorly received employment report and the subsequent bungee jump by Treasury yields Friday.
The secondary market, mostly quiet throughout the holiday-shortened week, saw relatively light to moderate activity, a trader in New York said.
Investors and dealers are eager for this week's boost in volume to reveal more about prices and where reinvestment monies are headed.
"We should have a very interesting market next week," the trader said. "On the plus side, we're looking down the road to reinvestment. But I think investors are a little cautious about getting in here."
Muni yields ended the week mostly lower across the curve. They remained steady for maturities in 2012 through 2014, according to the Municipal Market Data scale. But yields for the rest of the curve fell one to three basis points. Bonds maturing between 2017 and 2034 plunged three basis points.
The benchmark 10-year muni yield retraced Thursday's losses, and then some. It fell three basis points to close out the week at 2.74%. The 30-year yield lost two basis points, falling to 4.37%. The two-year yield, as is its wont, ended the week unchanged at 0.42% for the 19th straight session.
Treasury yields dropped Friday morning following the release of the employment report and closed lower. The 10-year yield plunged 13 basis points to close at 3.02%.
The two-year yield fell eight basis points to 0.40%. The 30-year yield tumbled nine basis points to 4.29%.
After the holiday blip, new issuance should return to June's volume levels, when it averaged more than $5 billion a week.
Muni bonds expected to be sold this week total $5.3 billion versus a revised $878.4 million last week.
New issuance had been averaging $3 billion a week for most of the year. That's down about 44% for the first half when compared with the same period in 2010.
Just when one thought they had turned a corner, municipal bond mutual fund flows once again saw outflows last week. They had seen net inflows for three out of the four previous weeks.
In the week ended July 6, there were net outflows of $272 million for muni bond funds that report their flows weekly, according to Lipper FMI. Investors the previous week allocated $163 million to muni funds.
High-yield muni funds saw outflows for only the second time in nine weeks. Funds that report weekly saw outflows of $27 million, compared with inflows of $92 million the previous week, Lipper reported.
The MMD's weekly sentiment poll of market participants showed a bearish tone owing to customer inactivity and stubborn yields.
On Friday, 44% of sell-side respondents were bearish on the municipal market for the week, up from 40%. Neutral opinions fell to 44% from 50%, while bullish positions registered just 12% of the total, up slightly from 10% the week before.
Portfolio managers' opinions changed the most from the previous week. Last week 50% of them were bearish on the market, against 14% in the previous poll. And while 72% of portfolio managers were neutral, 33% now are. Those with a bullish view of the muni market rose to 17% from 12%.
And Friday's employment numbers did little to inspire respondents. Some participants said the market will stall at its current numbers for some time.
