Municipal bond yields strengthened across the curve on Tuesday, outperforming Treasuries, as investors said a slump after last week's employment report was overdone.
Yields on bonds maturing in four-to five-years and 15 to 30 years fell by two basis points, and dropped by one basis point for two-to three-year and five- to 14-year maturities, according to Municipal Market Data's Triple-A scale. Yields for two-year and 10-year bonds fell by one basis point to 0.36% and 2.31% respectively, according to Municipal Market Advisors. The 30-year's yields fell by two basis points to 3.59%.
"The unemployment rate dropped so much, but once people dug into the report they did not like what they saw," a trader in Chicago said.
Treasuries were steady Tuesday, with the 30-year and the 10-year benchmark remaining at 3.40% and 2.61%, respectively, from Monday's market close. The two-year notes weakened, rising one basis point to 0.44%.
Yields on municipal bonds began rising on Friday after the employment situation report showed that the unemployment rate dropped to 6.3% in April from 6.7% in March, lower than analysts' prediction of 6.6%. Total nonfarm payrolls rose to 288,000 in April from a revised 203,000 in March.
Municipal yields for four-to six-year maturities rose two basis points, and increased one basis points for seven year maturities, Municipal Market Data's Triple-A scale. The rest of the curve remained unchanged from Thursday.
Treasuries were mixed Friday, with the 30-year yields falling four basis points to 3.37% and the 10-year benchmark slipping two basis points to 2.60%. The two-year notes rose one basis point to 0.43%.
On Monday municipal yields held steady throughout the curve, Municipal Market Data's Triple-A scale.
Traders said that yields did not rise more drastically after the report was released, and have now rebounded because the underlying information in the report was not as strong as the headline number.
"The market had a firmer tone today," a trader in Dallas said.
A trader on the west coast said the market's reaction was likely subdued by the labor number, which showed the labor force shrank by 806,000 in April.
"The participation rate dropped, and that explained the unemployment rate for a large degree," a trader in New Jersey said.
Traders are divided about how Federal Reserve Chairwoman Janet Yellen's speech scheduled for Wednesday will affect the market. The trader in Chicago believes it will provide insight on Yellen and the Fed's assessment of the employment situation report.
"They gave 6.5% as the target rate unemployment should drop to before the Fed decided to raise interest rates," the trader in Chicago said. "Now they are backing off that comment."
The trader in Dallas said that the market will definitely be looking at her speech tomorrow.
"If she says anything different from what the fed has been saying all along there will be a market reaction," he said.
The trader in New Jersey anticipates the market's reaction to anything she announces in her speech will be muted.
"I would be surprised, even given the numbers we've seen, that any numbers she announced would give a change in direction," he said.
Yields on bonds from Puerto Rico's March $3.5 billion general obligation issuance fell by Tuesday's market close from the day's opening.
Yields for the benchmark 8% coupon maturing in 2035 fell three basis points to 8.77% from where they were trading this morning, according to data provided by Bloomberg. This is one basis point lower than yields were at on Monday's market close, though they are still six basis points higher than the 8.71% they were trading at on Friday.
"I think that investors that are buying Puerto Rico should be prepared for significant volatility, particularly over the next several years," Fred Bacani, Head of Fixed Income & Trading at Veritable LP in Newtown Square, Pennsylvania, said in an interview.
Morgan Stanley won the bid for $113.3 million of Delaware Transportation Authority's Delaware Transportation System senior revenue bonds on Tuesday, the largest competitive issuance scheduled for the week.
Yields ranged from 0.15% with a 5% coupon maturing in 2015 to 2.55% with a 3.25% coupon in 2025.
"The buyside would definitely like to see rates go out, but with the amount of money around and the lack of supply out there I don't see rates rising anytime soon," the trader in Dallas said.
The bonds are callable at par in 2024 and are rated Aa2 by Moody's Investors Service and AA-plus by Standard & Poor's.
Barclays Capital will bring $260 million of tax allocation refunding bonds for the successor agency to the Inland Valley Development Agency Tuesday. The deal consists of a non-alternative minimum tax series and a federally taxable series. The bonds are rated A-minus by S&P.
Citigroup Global Markets brought $176.1 million of lease revenue bonds to market for the San Mateo County Joint Powers Financing Authority in California. Yields ranged from 0.68% with a 3% coupon in 2017 to 4.12% with a 4% coupon in 2037. The bonds mature serially from 2017 to 2034 and have term bonds in 2035 and 2037. The bonds are callable at par in 2024 and are rated AA-plus by S&P.
JP Morgan Securities brought a two-part deal totaling $162.9 million of health facilities revenue bonds for UnityPoint Health to the market Tuesday.
Yields for $93.1 million of Wisconsin Health and Education Facilities Authority revenue bonds ranged from 0.16% with a 1% coupon in 2014 to 3.55% with a 5% coupon in 2029.
