NEW YORK – The tax-exempt market was much stronger Friday afternoon as investors continued the risk-off trade after the poor unemployment numbers this morning. Munis climbed higher, following Treasuries.

“We’ll trim off a couple more basis points today especially on the long end after non-farm payrolls today,” a New York trader said. “Demand is definitely seen in the primary as these bigger deals get taken off of the table pretty rapidly.”

He added moving forward, credit spreads will be most interesting to watch. “I’m curious to see the point at which spreads widen again, if at all. The reach for yield is evident, even on the retail side of the market.”

Munis were firmer Friday afternoon, according to the Municipal Market Data scale. Yields inside three years were steady while the four- to six-year yields fell two basis points. Outside seven years, yield dropped between one and four basis points.

On Thursday, the two-year yield closed flat at 0.31% for the 12th consecutive trading session while the 10-year also finished steady at 1.85%. The 30-year fell three basis points to 3.19%.

Treasuries continued to gain. The benchmark 10-year yield dropped five basis points to 1.88% while the 30-year yield fell four basis points to 3.07%. The two-year yield fell one basis point to 0.26%.

Over the course of the past week, muni-to-Treasury ratios have fallen as munis outperformed Treasuries and became more expensive. The 10-year muni yield to Treasury yield fell to 96.4% from 96.9% last Friday while 30-year ratio dropped to 102.2% from 104.2%. The five-year ratio held steady at 100%.

The slope of the yield curve dropped below 300 this week for the first time since February 2 when the slope hit 296 basis points. Prior to early 2012, the slope had not fallen below 300 basis points since 2008, according to MMD’s Bob Nelson.

On Thursday, the slope dropped to 299 basis points from 305 basis points a week prior. The slope has flattened significantly since the beginning of the year when it started at 332 basis points.

The 10- to 30-year slope of the curve also fell to 134 basis points from 138 basis points the week before. It has flattened from 169 basis points at the start of the year.

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