Municipal bond and Treasury yields fell Friday afternoon as investors' concerns about the employment situation report eased.
Unemployment remained at 6.7% in March, and while nonfarm payrolls increased by 192,000, the report did not quite meet market expectations and suggested economic growth hasn't accelerated.
"There was a bump up in rates coming into this report," Dan Heckman, a strategist at US Bank said. "I am surprised the market didn't react more negatively."
Earlier this week, investors were worried about employment after ADP projected higher-than-average payroll numbers for March, and revised February's number upward. After the report, Treasuries began selling off and munis followed, but rebounded the following day.
Muni yields fell Friday afternoon, with bonds maturing on the intermediate curve and beyond 2031 slipping as much as five basis points. Yields on short-terms held steady, according to the Municipal Markets Data triple-A scale.
"There's crowding in the short end of the muni market," Heckman said. "We're not getting an increase in the longer term. Investors can't remain in short maturities forever; there's no income or capital appreciation there. It's good to be better out on the yield curve."
Treasuries strengthened Friday afternoon, as the 10-year benchmark fell three basis points to 2.73% and the 30-year yields slid two basis points to 3.59%. Two-year notes slipped one basis point to 0.42%.
"The market has been pretty volatile," Heckman said. "There was a sell off earlier in the week with stronger activity later on. Issuance has picked up, but there is still lot more demand than bonds. This dynamic is working well for munis as they outperform Treasuries."
The total potential new issue volume for next week is about $5.4 billion, up from this week's $3.2 billion issuance, according to Ipreo and The Bond Buyer.
"We're starting to get higher levels of issuance," Heckman said. "Issuance will be a little bit heavy for a few more weeks until it trails off again."
Not only will next week's calendar continue the light issuance trend seen in all of 2014, but it is once again heavy with education deals. Issuance will be led by $650 million of New York City Teach for America bonds that are rated Aa1 by Moody's Investors Services and AAA by both Standard and Poor's and Fitch Ratings.
The University of Connecticut will sell $220 million of bonds, which received an Aa3 rating from Moody's, an AA rating from S&P and an AA-minus from Fitch.
There will also be a lot new issuance from New York next week.
"There's a sizable New York City Transitional Finance Authority deal next week for $650 million," Heckman said. "The MTA is going to issue a $500 million deal on Thursday. These deals will likely take center stage next week."
Goldman, Sachs & Co. received the formal award on $411.2 million of University of California taxable revenue bonds Friday morning.
The bonds are priced at par to yield from 0.15% in 2015 to 3.738% in 2025. All of the bonds are callable at par in 2024, except those maturing in 2025. There is a term bond in 2044.
The bonds were priced with a spread to Treasuries ranging from 18 in 2016 to 115 in 2044. There is also a Treasury make whole call.
