NEW YORK – The Friday effect, coupled with a larger than expected drop in unemployment, pushed munis weaker.

“It has been pretty lackluster ever since the number came out favorable toward stocks,” said a Los Angeles trader. “The long bond is off two and a half to three points and nothing is going on.”

He added that the “bid side has dropped off and a lot of guys have hung their towels and are waiting until Monday.”

He also added that munis are weaker because they are following Treasuries, and not because of any fundamentals in the muni market. “The weakening is just a blip, and not a trend. There is a lot of talk that these job numbers are skewed and the weakening is more a response to Treasuries.”

“Even though ratios are a little less attractive, munis will stay strong given supply has been eaten up and there are guys sitting on cash.”

Munis were much weaker, according to the Municipal Market Data scale. Five- and six-year yields rose three to five basis points while yields outside the seven-year jumped six to eight basis points.

On Thursday, the two-year yield closed steady at 0.30%, matching its record low set Oct. 10. The five-year muni yield set a new record low of 0.66%, beating its previous record of 0.68% set Wednesday. The 30-year yield fell three basis points to 3.14%, tying its record low set Tuesday.

The 10-year muni yield was the anomaly, rising one basis point to 1.69%, closing two basis points higher than its low of 1.67% set Jan. 18.

Treasuries were steady in afternoon trading and weakening this morning. The two-year yield rose one basis point to 0.24%. The benchmark 10-year yield jumped 11 basis points to 1.94% while the 30-year yield spiked 13 basis points to 3.15%.

In the secondary market, trades reported by the Municipal Securities Rulemaking Board showed weakening.

A dealer sold to a customer New York City Municipal Water Finance Authority 5s of 2044 at 3.78%, 13 basis points higher than where they traded Thursday.

Another dealer sold to a customer California various purpose general obligation 7.550s of 2039 at 5.36%, 11 basis points higher than where they traded Thursday.

A dealer bought from a customer Waco, Texas, Education Finance Corp. 5s of 2043 at 3.61%, five basis points higher than where they traded Thursday.

Bonds from an interdealer trade of Texas Permanent University Fund 5.262s of 2039 yielded 3.96%, two basis points higher than where they traded Thursday.

Looking ahead to next week, the tax-exempt market can expect a paltry $3.91 billion, down from this week’s revised $4.38 billion. On the negotiated calendar, $3.02 billion is expected, up from this week’s revised $2.94 billion. In competitive deals, $893.1 million is expected, down from this week’s revised $1.44 billion.

Muni-to-Treasury ratios fell this week as munis outperformed Treasuries. The five-year ratio closed at 93% on Thursday, down from 97.3% on Monday. The 30-year ratio dropped to 104.3% from 106% on Monday.

The 10-year ratio was the exception, rising to 92.9% on Thursday from 92.4% on Monday.

The 10- to 30-year slope of the curve flattened this week, falling to 145 basis points from 146 basis points on Monday. Since the beginning of the year, the curve has flattened from 169 basis points.

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