Long-term municipal bond yields fell slightly after the May unemployment report showed the unemployment rate held at 6.3%.
Yields for bonds maturing in 26 to 30 years fell by as much as one basis point, according to Municipal Market Data. The rest of the curve held steady. Investors had been hoping the unemployment rate would improve, causing a sell-off in munis. Low issuance has been causing credit spreads to tighten and bonds to price richly.
"There are two reasons [yields are falling]," Anthony Valeri, Investment Strategist for LPL Financial, said. "One, the market was looking for a stronger report, and also because there is a very strong rally in European bond markets."
The employment situation report showed the unemployment rate steady and nonfarm payrolls rose 217,000, after adding 288,000 jobs last month.
"Everything's been coming to market priced rich, it's been a struggle to find bonds," a trader in New York said. "The market needs to sell-off a bit."
The spread between the triple-A 10-year benchmark general obligation bond and the benchmark 10-year Treasury note has compressed by 14.47 basis points to 86.97 from June 5, 2013, to June 4, 2014, according to Municipal Market Data Interactive.
"We're due for a spread correction," a trader in the Midwest said. "The secondary is unwinnable because buyers are paying attention to new issues, buyers are holding out for higher yields."
BlackRock said in a meeting with the press on Thursday that better economic numbers, especially a higher gross domestic product rate, might spur more issuance and predicted issuance in the next few years will remain between $275 billion and $325 billion.
Los Angeles County again have the largest deal in the market next week, $1.7 billion of Unified School District refunding GOs. J.P. Morgan Securities is the lead underwriter. The deal is rated Aa2 by Moody's Investors Service and AA-minus by Standard & Poor's.
New York City will also bring a $850 million of GOs to the market with Morgan Stanley as the lead underwriter. The deal is rated Aa2 by Moody's and AA by S&P.
The competitive market will be rather light next week, with Lynchburg, Va., auctioning the largest deal: $116.5 million of GOs. The deal received a Aa2 rating from Moody's, and a AA-plus from S&P and Fitch.
Treasuries were mixed Friday morning, with the 30-year yield slipping two basis points to 3.42% and the 10-year benchmark sliding one basis point to 2.58%. The two-year note rose two basis points to 0.40%.
