The municipal market was firmer by about two basis points Friday as it showed little immediate reaction to the House passing the Senate-approved version of the much-discussed $700 billion federal government bailout plan.
The House approved the rescue package Friday after the Senate approved the modified package Wednesday. The House rejected a version of the plan last Monday. The municipal market did not show an immediate reaction to the plan's approval.
"Well, that's the first step, but this isn't going to clear things up just like that," a trader in New York said. "It's going to take some time. But right now, there hasn't been a quick move in munis immediately after this, but we'll see. This is definitely a necessary step, though."
"Let's see what happens now," a second trader in New York said. "We're all very relieved that something's been done, but it's really a wait-and-see approach at this point. The new issues need to start finding their way back into the market because we are really strapped for new issue supply right now, and at some point over the next couple of weeks, we should see a flood of those issues. But right now, it's just wait and see."
Trades reported by the Municipal Securities Rulemaking Board Friday showed some gains. Bonds from an interdealer trade of California 5s of 2033 yielded 5.59%, down two basis points from where they were sold Thursday. A dealer sold to a customer Washington 5s of 2029 at 5.39%, one basis point lower than where they traded Thursday. Bonds from an interdealer trade of New York's Liberty Development Corp. 5.5s of 2037 yielded 6.58%, down two basis points from where they traded Thursday.
"We're definitely firmer, but I didn't see any real movement in munis following the vote," a trader in Los Angeles said. "Treasuries did an about-face, which was to be expected, but in this market not much of a change from before the vote until now."
The Treasury market showed gains Friday, reversing earlier losses after the House passed the bailout package. The yield on the benchmark 10-year Treasury note, which opened at 3.63%, was quoted at 3.75% before the vote was announced, and finished at 3.60%. The yield on the two-year note opened at 1.62%, was quoted before the vote at 1.77%, and finished at 1.59%. And the 30-year Treasury bond, which opened at 4.15% and was quoted prior to the vote at 4.23%, finished at 4.09%.
In economic data released Friday, non-farm payrolls dropped 159,000 in September, after a revised 73,000 decline in August. Economists polled by Thomson Reuters had predicted a 100,000 drop in non-farm payrolls.
Also, the Institute for Supply Management's non-manufacturing business activity composite index was 50.2 in September, down from 50.6 in August, on a seasonally adjusted basis. Economists polled by Thomson Reuters had expected a 50.0 level.
Activity in the new-issue market - which has seen numerous postponements and cancellations since the tremendous volatility in the market began more than two weeks ago - was again light Friday.
Over the past few sessions, more larger deals have been reaching completion, but several more issues were postponed last week. Henrico County, Va., on Friday postponed a $95.9 million competitive sale of general obligation public improvement bonds, originally scheduled to sell tomorrow. It has been delayed until further notice.