The tax-exempt market continued to outperform taxables as muni yields traded steady despite a selloff in Treasuries.
"It seems flat," a Virginia trader said. "Treasuries are weaker so I think munis are generally taking their lead from Treasuries. But we are outperforming and munis are lagging."
He added with limited news for trading in the muni market, all cues are coming from Treasuries.
Others agreed this first week of 2013 has been calm in the municipal bond market. "It was a relatively quiet start to the year," wrote Dan Toboja, vice president at Ziegler Capital Markets. "The fiscal cliff talk has left more questions than answers as participants don't want to take risk ahead of what could still be a knock to the tax-exemption of munis in only a couple months."
He added, "There is some concern in the market that is keeping activity muted. Several deals were put on hold at the end of the year due to market uncertainty. Now there may be more supply than the market was prepared for in the first weeks of the month. Until the supply picture and the cliff picture become clear there will be more limited trading and still some challenged liquidity."
The Municipal Market Data scale finished Thursday mostly steady after weakening Wednesday. The 30-year yield rose one basis points to 2.87%. The two-year and 10-year yields finished flat at 0.36% and 1.78%, respectively.
Treasuries weakened Friday morning for the third consecutive session in 2013. The benchmark 10-year yield jumped three basis points to 1.94% while the 30-year yield rose two basis points to 3.14%. The two-year was steady at 0.28%.
In the primary market next week, $2.7 billion of muni bonds are expected to come to market, up from this week's revised $11.7 million. In the negotiated market, $1.72 billion is expected to price, up from this week's revised $4 million. On the competitive calendar, $1.02 billion should be auctioned, up from this week's revised $7.7 million.
In economic news, the December employment report came in largely as expected, with a 155,000 gain in payrolls and unemployment holding at 7.8%.
"This is a constructive report from an economic growth perspective," wrote economists at RDQ Economics. "Employment continued to expand at a moderate rate in the final three months of 2012 despite the uncertainties over the fiscal cliff. Apart from the moderate pickup in private employment in the last three months versus the last year, there were other positives within the report including the strengthening in wage growth, the increase in the workweek, and increases in employment in the key sectors of construction and manufacturing."
They added, "However, employment growth has not been strong enough to make further inroads into lowering the unemployment rate - the key variable for Fed policy - even though the participation rate has been flat since September."