The municipal bond market rallied Friday, with yields down as much as 10 basis points on some points of the curve, after a U.S. government report showed few new jobs were added in December.
December non-farm payrolls grew by 74,000, compared with the 2013 average of 182,000 jobs added monthly. The unemployment rate was reported at 6.7%, down from 7% in November.
"The jobs report doesn't bode well for tapering but it's back and forth debate on that," one New York-based trader said in an interview, referring to the Federal Reserve's efforts to scale back its economic stimulus.
Yields on the Municipal Market Data triple-A scale Friday firmed on bonds maturing after 2016, with those on the long end dropping the most.
Bonds maturing from 2029 to 2032 had yields fall as much as 10 basis points, while those with maturities sooner than 2026 slid as much as seven basis points.
"Municipal bonds are moving in a positive direction," Standard & Poor's Dow Jones Indices said in a research note. "Overall the belly of the yield curve has begun 2014 on a positive note."
S&P's National AMT-Free Municipal Bond Index has returned 0.76% so far this year. SPDJI's other municipal indexes showed yields down as much as 14 basis points in its Series 2019 Index, and by nine basis points in its 20 Year High Grade Rate index.
The smaller-than-expected rise in December payroll, a jump of just 74,000 jobs, was probably affected by seasonal conditions and extreme weather that came with what meteorologists described as a "polar vortex" of cold temperatures.
By comparison, the payroll number increased by 241,000 in November.
"The jobs number is a little more confusing than everyone was anticipating," a California-based trader said. "People are still trying to digest how much the weather is affecting things. It's never been quite as big of a factor when you look at storms historically."
Treasuries strengthened as well Friday morning, with the 10-year yield plummeting nine basis points to 2.88%. The 30-year yield firmed by six basis points to 3.81%, while two-year yield fell four basis points to 0.39%.
Traders said it was possible that a lack of supply was holding the market back from real strength, as this past week offered just $1.79 billion in new deals. The prior week had just $10.8 million in new issues.
"Lack of supply and lack of new issuance have people chasing levels at this point," the New York-based trader said. "Inside of six to seven years, there's inquiry but there's very little amount of supply at this point."
The secondary market showed strengthening, according to data provider Markit. California Tobacco Settlement revenue bonds maturing in 2045 with a 5% coupon fell by six basis points to 5.22%, while Puerto Rico Commonwealth Aqueduct and Sewer bonds with a 5% coupon in 2033 slid two basis points to 8.7%.
