The tax-exempt market struggled to find footing Friday and ended the week lower.
Without primary issuance to provide direction, muni yields followed Treasury yields higher as the risk-on trade took over.
Some traders said the market was slower as the weekend approached. "Munis are steady," a New York trader said. "Nobody is hitting bids."
While summer doldrums appeared to set in on a typical quiet Friday, the market started drifting by the afternoon.
Munis rose across the curve, according to the Municipal Market Data scale, ending a mixed week that saw steady, weaker, and firmer tones at different sessions.
Overall for the week, the 10-year tax-exempt yield jumped up seven basis points to 1.71%. It remains 11 basis points above its record low of 1.60% set July 26. Throughout the week, the 30-year yield increased three basis points to finish at 2.87%. It remains off its record low yield of 2.79% set July 25. The two-year was steady at 0.29% for the seventh consecutive session.
Munis followed Treasuries lower as better-than-expected July jobs numbers pushed traders into risky assets. The stock market surged, pushing Treasuries prices lower. The benchmark 10-year yield spiked up nine basis points to 1.57% while the 30-year yield jumped 10 basis points to 2.65%. The two-year yield increased one basis point to 0.25%.
The July non-farm payrolls increased 163,000 to beat analyst expectations, but the jobless rate also increased to 8.3%.
"Job creation in July posted its strongest showing in five months and the revisions to the prior two months were minor, which should go some way to alleviating fears that the U.S. economy is slipping toward recessionary territory," wrote economists at RDQ Economics. "However, the more volatile household survey took a dimmer view of the labor market and reported that the unemployment rate edged up to 8.3%. This makes the report something of a mixed bag for the Fed and keeps open the question as to whether the Fed will announce a new easing program at its September 12-13 FOMC meeting."
Throughout the week, muni-to-Treasury ratios rose as munis underperformed and became relatively cheaper. The five-year ratio increased to 100% on Friday from 98.5% at the end of the previous week. The 10-year ratio increased to 108.9% from 105.8% the Friday before. The 30-year ratio jumped to 108.3% on Friday from 107.6% at the end of the previous week.
The slope of the yield curve steepened throughout the week as supply slightly outweighed demand. The one- to 30-year slope steepened to 268 basis points on Friday from 265 basis points the week before. The one- to 10-year slope increased slightly to 152 basis points from 145 basis points at the end of the week prior.
Credit spreads have mostly compressed as investors moved down the credit scale in search for yield. The 10-year triple-A to single-A spread compressed to 80 basis points on Friday from 83 basis points at the end of the previous week. The 30-year spread came in to 72 basis points from 73 basis points the week before.
The five-year triple-A to single-A spread remained at 61 basis points on Friday from the week prior.
In the primary market next week, the market can expect $6.35 billion, up from this week's revised $5.93 billion. On the negotiated calendar, $4.07 billion is expected to be priced, down slightly from this week's revised $4.16 billion. In the competitive market, $2.28 billion is expected to be auctioned, up from this week's revised $1.77 billion.
