The municipal bond market posted  gains Friday for the first time in a week, edging higher after worse-than-expected employment data pushed investors into safe-haven assets.

Municipal bond yields fell as much as three basis points, following Treasuries, though a building new-issue calendar in September made buyers cautious about how long the rally could last. In the coming week, supply is expected to tick up to $5.9 billion, from $1.4 billion in the past week.

“There are still outflows and supply is picking up a little bit next week so that’s likely going to put pressure on the market,” a Virginia trader said Friday. “We haven’t had that problem yet of both outflows and higher supply. And usually we see an uptick in September.”

Relative to Treasuries, munis look cheap as ratios are over 100%. But headline risk from Detroit and Puerto Rico are keeping buyers sidelined for now, this trader said.

“Munis are slightly stronger but not much,” a Boston trader said. “Maybe a couple of basis points. Phones are ringing a little bit more than yesterday.”

Friday, yields on the triple-A Municipal Market Data scale ended as much as three basis points lower. The 10-year yield slid three basis points to 3.01% and the 30-year yield dropped two basis points to 4.49%. The two-year was steady at 0.43% for the 37th straight session.

Yields on the Municipal Market Advisors scale also ended as much as three basis points firmer. The 10-year fell two basis points to 3.14% and the 30-year yield dropped one basis point to 4.60%. The two-year closed unchanged at 0.55% for the 16th session.

Treasuries ended firmer on Friday, though they pared  their morning gains. The two-year yield fell six basis points to 0.46% and the benchmark 10-year yield dropped five basis points to 2.93%. The 30-year yield fell one basis point to 3.87%.

A flight to safe-haven assets came after the August employment report showed payrolls were up 169,000, less than forecast, and the June and July figure was cut by 74,000. The unemployment rate fell to 7.3% due to a drop in labor force and participation.

“The only-moderate payroll gain in August and the downward revisions to job growth in June and July are disappointing and will make the debate over scaling back bond purchases at the Sept. 17-18 Federal Open Market Committee meeting an intense one,” wrote economists at RDQ Economics. “The unemployment rate continues to fall and is only 0.3 percentage point above the level that Chairman Bernanke said would be expected to prevail when bond purchases were fully wound down. Our belief is that the Fed will still announce a modest reduction in the pace of bond purchases on Sept. 18 but the call is a closer one than we were expecting.”

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.