Market Close: After Steady Week, Muni Yields Jump On Jobs Data

Light trading volume Friday on the Fourth of July holiday-shortened week didn’t stop a selloff in muni bonds as yields jumped with Treasuries on better-than-expected June employment data.

Municipal bond traders said not many transactions went through, but the trades that occurred were much weaker.

June payrolls rose 195,000 while April and May revisions were up 70,000. June unemployment rate stayed at 7.6%.

“This is a stronger-than-expected jobs report that further confirms the U.S. labor market is experiencing a sustained improvement in job creation,” wrote economists at RDQ Economics. “The three-month trend in job creation is close to 200,000 per month and the 12-month average is not far away from that. “We would appear to be one step closer to the Fed tapering its bond purchases, which we still see as being announced at the September FOMC meeting.”

Treasury yields jumped on the news. The benchmark 10-year yield rose 21 basis points to 2.72% and the 30-year yield increased 19 basis points to 3.69%. The two-year yield rose four basis points to 0.40%.

Munis followed in the midst of light trading. “It’s definitely weaker but just aren’t a lot of people around,” a Chicago trader said. “The general market is telling us it’s off a fair amount but the volume is light.”

This trader added in the high yield space, there have been only a handful of trades, but yields on those trades are up 12 to 13 basis points.

“With the mutual fund outflows there is a fair amount of money leaving these bonds and the jobs number came, and people are looking at whether or not the rally was a little overbought over the past couple days,” he said.

In the secondary market Friday, trades compiled by data provider Markit showed weakening.

Yields on Baltimore County, Md. 5s of 2021 jumped 13 basis points to 2.36% and California 5s of 2042 increased 10 basis points to 4.61%.

Yields on Regional Transportation District of Colorado 4s of 2015 rose nine basis points to 0.92% and Charleston County, S.C., 5s of 2022 rose seven basis points to 2.60%. Yields on New York City Transitional Finance Authority 5s of 2031 and Texas Tech University 5s of 2018 rose four basis points each to 4.05% and 1.82%, respectively.

Friday, yields on the Municipal Market Data scale ended as much as 12 basis higher. The 10-year yield increased 10 basis points to 2.66% and the 30-year yield rose 12 basis points to 3.95%. The two-year yield increased two basis points to 0.52%.

Yields on the Municipal Market Advisors scale also ended as much as 12 basis points higher Friday. The 10-year yield rose 10 basis points to 2.82% and the 30-year yield increased 12 basis points to 4.07%. The two-year yield rose two basis points to 0.55%.

Even with an early close Wednesday and a full close for bond markets Thursday on Independence Day, retail buyers emerged and the ratio of buy to sell trades jumped to its highest in five weeks.

According to BondDesk Group, there were 84,441 buy trades for the week ending July 3 versus the previous week’s 97,480. Buy trades this week were the second highest in five week. Sell trades fell to 34,677 for the week ending July 3, down from the previous week’s 42,739. Sell trades fell to its lowest in five weeks. The buy-to-sell trade increased to 2.4 from the previous week’s 2.3 and was the highest in five weeks.

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