The tax-exempt market ended steady to slightly stronger Friday after poor employment numbers led to demand for safe-haven assets.
Treasuries rallied and munis followed. "We saw good action after that jobs number," said Ryan Kearney, a trader at Samson Capital Advisors. "We saw a large mutual fund list out right after that employment number with bonds for sale anywhere from 2017 to 2027. And most of the items from that list traded well."
Kearney added that munis were stronger for the day, though lagging behind the Treasury rally. Overall for the week, trading was about average, with activity picking up Friday. "We saw more bonds trade today in the secondary and a few more dealers positioning bonds today."
California has been trading stronger all week. A dealer bought $15 million of San Francisco airport bonds that were reoffered and sold quickly. California general obligation spreads tightened in the five- to nine-year range. "California bonds are trading aggressively and there is nothing on the horizon with supply that makes us think the fever for California paper will subside."
Another trader Friday morning said activity appeared slow. "It's very quiet but there are a lot of bid-wanted lists," a Boston trader said.
A flight to fixed income paper was driven by job data released Friday morning. July payrolls rose 162,000 and June to May payrolls were revised 26,000 lower, leaving the 12-month average gain at 189,000. The unemployment rate dipped to 7.4% from 7.6% in June due to a drop in labor force participation.
"Employment continued to expand at a solid pace in July and the unemployment rate fell to 7.4% from 7.6% in June," wrote economists at RDQ Economics. "Since the Fed announced the third round of QE in September last year, nonfarm payrolls have risen by 2.1 million and the unemployment rate has fallen from 8.1% to 7.4%. Although the jobs gain fell a little short of expectations in July, we expect the Fed will go ahead and announce at the September meeting that it plans to pare back bond purchases.
"Bonds are enjoying a relief rally but if that rally is predicated on the assumption that the Fed will hold off until December to announce a tapering of bond purchases, we think buyers will be disappointed."
Treasuries rallied. The benchmark 10-year yield slipped 11 basis points to 2.61% and the 30-year yield dropped eight basis points to 3.69%. The two-year yield fell three basis points to 0.31%.
Munis were almost unmoved. Friday, yields on the Municipal Market Data scale ended unchanged. The 10-year and 30-year yields closed flat at 2.71% and 4.22%, respectively. The two-year finished flat at 0.43% for the 13th consecutive session.
Yields on the Municipal Market Advisors scale ended as much as one basis point lower. The 10-year and 30-year yields were flat at 2.92% and 4.32%, respectively. The two-year was unchanged at 0.55% for the second session.
Trades compiled by data provider Markit Friday showed a mix of strengthening and weakening. Yields on New Jersey Turnpike Authority 5s of 2043 and Orlando, Fla., Utilities Commission 5s of 2022 fell two basis points each to 4.76% and 2.92%, respectively.
Yields on Erie, Penn., Water Authority 4s of 2047 and Palmdale, Calif., Water District 5s of 2028 fell one basis point each to 5.49% and 4.37%, respectively.
Other trades were weaker. Yields Ohio's Buckeye Tobacco Settlement Financing Authority 5.125s of 2024 rose two basis points to 7.52%.
Yields on Ventura County, Calif., Public Financing Authority 5s of 2043 and New Jersey Economic Development Authority 5s of 2029 increased one basis point to 5.13% and 4.45%, respectively.
Looking to next week, many traders expect the firmer tone could continue, even with a growing new-issue calendar. "There is above average new issue supply next week but investors should have ample cash on hand from the Aug. 1 payments," an Ohio trader said. "That should help new issue supply go away."