Tax-exempts ended Friday softer, following Treasuries, after employment numbers were better than expected,though some traders were hesitant to cut prices further after the week’s selloff.
All eyes turned to May non-farm payroll numbers released Friday morning. Payrolls in May were up 175,000 after a downwardly revised April number. The May unemployment rate rose slightly to 7.6% from 7.5% as the labor force expanded.
“This report shows job growth about in line with recent trends, which should ease concerns over the impact of the fiscal drag on the economy,” wrote economists at RDQ Economics. “The rise in the unemployment rate in May is not a sign of weakness because it reflected a strong inflow into the labor force, which masked a surge in household employment. This payroll gain is likely not strong enough to push the Fed to taper asset purchases as soon as the June FOMC meeting. We continue to expect the Fed to begin tapering purchases in September.”
Treasuries subsequently sold off and munis followed. Traders remained hesitant to cut prices in the secondary and weren’t selling bonds much cheaper after weeks of losses.
“Traders are quite proud of their offerings and so it’s hard to get things done,” a San Francisco trader said. “There is not a lot of conviction on the buyer side and they can probably buy bonds cheaper next week.”
He added the market would be a lot cheaper than it is if trades were going through. “It’s weaker than some trades indicate and it would be a lot weaker if more got done. Traders are trying to minimize losses after the previous weeks.”
Other traders said there were bids out early. “I hear it’s quiet with slight cuts,” a New York trader said. “There are some big blocks out for the bid.”
In the secondary market, trades compiled by data provider Markit showed weakening. Yields on Indiana State Finance Authority 5s of 2019 and Texas Transportation Commission 5s of 2041 jumped four basis points each to 1.73% and 4.33%, respectively.
Yields on California’s Golden State Tobacco Securitization Corp. 5.125s of 2047 and New York’s Metropolitan Transportation Authority 5s of 2043 increased three basis points each to 6.23% and 4.20%, respectively.
Yields on California Public Works Board 5.25s of 2023 rose two basis points to 2.60% and New York City Municipal Water Finance Authority 5s of 2047 increased one basis point to 3.96%.
Friday, yields on the Municipal Market Data scale ended as much as six basis points higher. The 10-year yield increased two basis points to 2.13% and the 30-year yield jumped six basis points to 3.34%. The two-year was steady at 0.30% for the fifth session.
Yields on the Municipal Market Advisors 5% scale also ended as much as six basis points higher. The 10-year yield increased three basis points to 2.20% and the 30-year yield jumped six basis points to 3.46%. The two-year finished unchanged at 0.36% for the eighth session.
Treasuries ended weaker. The benchmark 10-year yield increased eight basis points to 2.16% and the 30-year yield jumped nine basis points to 3.32%. The two-year yield rose one basis point to 0.31%.