Market Post: Munis Weaker with Treasuries on Employment Report

The municipal bond market was weaker Friday morning, following a big jump in Treasury yields, after a much better than expected employment report showed the economy added 204,000 jobs in October.

October non-farm payrolls were up 204,000 with private payrolls up 212,000, according to the Bureau of Labor Statistics. The jobless rate ticked up one point to 7.3% due to the partial government shutdown. Economists had expected 125,000 new jobs.

"If the Fed is true to its data-dependent approach to monetary policy then we should get the tapering announcement at the December FOMC meeting," economists at RDQ Economics said. "Adjusted for government workers on temporary layoff, the unemployment rate fell to 7.0% from 7.2% — and while this was driven by lower participation, this continues a trend that has been in place for the last few years — while the near-term momentum in payroll growth edged above 200,000 per month on the three-month average."

"In addition, third-quarter GDP topped expectations at 2.8% and the ISMs point to stronger growth in October," the economists said. "The economy appears to have sustained growth momentum in recent months, which argues for the Fed to throttle back on QE and we expect this announcement at the next Fed meeting."

Treasuries were much weaker on the economic data. The benchmark 10-year yield jumped 13 basis points to 2.73% and the 30-year yield rose 10 basis points to 3.82%. The two-year yield increased two basis points to 0.32%.

"Treasuries are getting hit and munis are being cut about three to five basis points," a Chicago trader said. "There are no trades yet but we'll be weaker on the day."

On Thursday, the triple-A Municipal Market Data scale ended as much as three basis points stronger after a stronger session Wednesday. The 10-year yield slipped two basis points to 2.49% and the 30-year yield fell three basis points to 4.08%. The two-year was steady for the eighth session at 0.34%.

Yields on the Municipal Market Advisors benchmark scale also ended as much as three basis points stronger. The 10-year yield fell one basis point to 2.64% and the 30-year yield dropped three basis points to 4.27%. The two-year was flat for the seventh session at 0.48%.

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