The tax-exempt market was quiet Friday morning as this week's primary primary pricings were completed and investors turned their attention to next week's activity.

"It's been very quiet today," a New Jersey trader said. "There was an OK bid most of the week but it started to fade a bit Thursday so today it's just extremely quiet."

He added next week's calendar is nowhere near the levels the market has seen in the past. "It's a weak calendar next week so I don't see any big pickup in activity."

The trader added the majority of the calendar over the past three or four months has been refundings, and very little new money. "It's really a function of budget considerations for a lot of these municipalities," he said. "So if you don't have refundings in the picture, your calendar is going to be light. We expect a pickup at the end of the year but we don't see a lot of activity now due to a lack of refundings."

On Thursday, the 10-year Municipal Market Data yield rose five basis points to 1.78% while the 30-year yield increased four basis points to 2.92%. The two-year closed at 0.29% for the 30th consecutive session.

Treasuries rallied on poor economic data. The benchmark 10-year yield fell six basis points to 1.61% while the 30-year yield dropped five basis points to 2.75%. The two-year yield fell two basis points to 0.25%.

In economic news, non-farm payrolls rose 96,000 in August, less than the 125,000 expected by economists. Because of a decline in labor participation, the jobless rate fell to 8.1%.

"Forecasting remains a humbling experience as contrary to the encouraging signals from the ADP employment report, the ISM nonmanufacturing survey, and NFIB small business jobs indicators, the employment report was disappointing in August," wrote economists at RDQ Economics. "Payroll growth came in well below expectations with downward revisions to the prior two months. Household employment dropped for the second straight month and the unemployment rate fell only because labor force participation declined to its lowest level in over 30 years."

The economists added, "Given Bernanke's speech last week, the Fed is likely to either launch a third round of QE or extend its commitment to zero rates into 2015. However, in our view this will do little, if anything, to boost growth. There is no shortage of liquidity in the banking system with reserves at almost $1½ trillion. There is, however, considerable uncertainty on the outlook for the taxation of labor and capital in 2013, which we think is the major challenge for the economy over the remainder of this year. Unfortunately, fiscal cliff issues are unlikely to be addressed before December."


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