The municipal market was firmer Friday as strong demand for tax-exempt securities continued.
Traders said tax-exempt yields were lower by five to seven basis points.
"Everybody is just loving this market," a trader in Los Angeles said. "It wasn't really a mad dash to buy anything that you can though, because let me tell you, everyone was so tired from all the action this week. But it's holding firm."
Trades reported by the Municipal Securities Rulemaking Board Friday showed gains. A dealer bought from a customer California 5.25s of 2038 at 5.19%, down five basis points from where they were sold Thursday. A dealer sold to a customer insured Springfield, Mo., 4.75s of 2029 at 4.85%, six basis points lower than where they traded Thursday. Bonds from an interdealer trade of Seminole County, Fla., 5s of 2031 yielded 5.08%, down four basis points from where they were sold Thursday. A dealer sold to a customer Minnesota 5s of 2026 at 4.62%, seven basis points lower than where they traded Thursday.
"We're definitely seeing the firmness continue here," a trader in New York said. "We've been getting better all week, and that certainly isn't changing now."
In economic data released Friday, nonfarm payrolls fell 63,000 in February, after a revised 23,000 decline the previous month. Economists polled by IFR Markets had predicted that 25,000 new jobs were created in February.
"I've been on the side of thinking the economy was going to skirt recession, but when the facts change, I'm willing to change my opinion," said Alan Levenson, chief economist at T. Rowe Price Associates Inc. "Not only the February payroll numbers, but also the revisions to December and January make a pretty firm statement that the labor market has turned toward recession."
"So that means that we're going to have declining payrolls for the next 12 to 18 months, and GDP growth could be negative in the first half of this year," he said. "The tax rebates that we're getting and more Fed rate cuts should keep us positive in the second half of the year, and downward pressure on the economy should ease next year, but that's the outlook that I've got."
The Treasury market mostly showed gains, but showed mild losses on the short end. The yield on the benchmark 10-year Treasury note, which opened at 3.59%, finished at 3.55%. The yield on the two-year note was quoted near the end of the session at 1.52% after opening at 1.51%.
"In terms of the [payrolls] release, one would have that there'd have been more of a reaction in the Treasury market, but it just tells you how rich Treasuries were to begin with, that we didn't get more of a rally off of this," Levenson added. "I think the bigger issue is that if we were seeing credit quality deteriorate - using mortgages as the prime example - even when employment was stable or growing a little bit, if people on net are losing jobs, it threatens to make credit quality deteriorate even faster."
He said that "from a substantive perspective, what the employment data tells us about the economy reinforces downside risk of this feedback loop that the Fed talks about of poor credit performance, tighter credit standards, harder to get credit, and worse credit performance, and it feeds on itself."
Meanwhile, Evan Rourke, portfolio manager at MD Sass, doesn't think the drop in payrolls had much of an impact on the muni market.
"Munis are kind of keeping pace [with Treasuries], or getting close to it. We started out slow [Friday], we were lagging a bit, maybe just because it's Friday morning after what's been a pretty volatile week but we're starting to catch up," he said. "Going forward, some of the people who maybe bought munis at incredibly attractive percentages late last month may be ready to turn around and take some profits, but we haven't seen enough of that to dampen the rally, so we're still moving up."
Activity in the new-issue market was light Friday.
Also, a slate of economic data will be released this week, beginning today, with January wholesale inventories and January wholesale sales. Then, Thursday, February import prices will be released, along with initial jobless claims for the week ended March 8, continuing jobless claims for the week ended March 1, February retail sales, January business inventories, and January business sales. And Friday, the February consumer price index will be released, in addition to the core CPI for February, and the preliminary March University of Michigan consumer sentiment index.
Economists polled by IFR Markets are predicting a 0.5% rise in wholesale inventories, a 0.4% jump in wholesale sales, a 0.6% uptick in import prices, 358,000 initial jobless claims, 2.835 million continuing jobless claims, a 0.2% increase in retail sales, a 0.2% rise in retail sales excluding autos, a 0.5% jump in business inventories, a 0.3% drop in business sales, a 0.3% uptick in the CPI, a 0.2% increase in the core CPI, and a 69.5 Michigan sentiment reading.
