Unexpectedly, the municipal market ended the week not with a whimper but a bang.
A lackluster Labor Department jobs report and rumbles from Greece ultimately stirred otherwise static muni yields to close out a storm-stricken and desultory week with a flourish of a rally. And though activity on the day was sparse, traders said, it was meaningful.
“The muni rally was pretty significant, lifting offerings from stalled primary deals and thinning secondary blocks in general,” wrote Municipal Market Data’s Randy Smolik in a report on the day’s session.
Tax-exempt yields saw sizable gains across all but the front end of the curve, according to the MMD scale. For maturities in 2016 and 2017, yields fell two to three basis points. Yields with maturities between 2018 and 2034 dropped six to seven basis points. Those for maturities beyond 2034 ended eight to 10 basis points lower.
The benchmark 10-year yield on Friday fell seven basis points to 2.17% to end the day. On the week, it plunged nine basis points.
The 30-year yield plummeted 10 basis points on the day and the week to 3.78%. The two-year yield remained unchanged at 0.30% for an 18th consecutive session, continuing to hover at its lowest level in more than 40 years.
Treasuries sparked Friday’s muni rally through one of their own which pushed yields to barrel-scraping levels, though not across the curve. The 10-year benchmark yield plunged 13 basis points to a near-record 2.01%. On the week, it fell 18 basis points, including 26 basis points from Monday’s close.
The 30-year yield has dropped 19 basis points on the day to 3.37%, and 22 basis points for the week.
The two-year yield, though, ticked up two basis points to 0.21%. For the week, it inched up one basis point.
New-issuance volume is expected to rise during the holiday week. Industry estimates place the total for this week at $2.99 billion, versus a pathetic $1.72 billion that came to market last week.
Investors pulled their money from municipal bond mutual funds for a sixth consecutive week. The week ending Aug. 31 saw $282 million in outflows from muni bond funds that report their flows weekly, according to Lipper FMI.
The withdrawals have increased from those of the previous week, when there were net outflows for muni bond funds of $148 million.
High-yield muni funds also saw their sixth straight week of outflows. Funds that report weekly saw outflows of $108 million, Lipper reported, against outflows of $35 million the previous week.
Low absolute yields, and not credit concerns, lie behind the latest run of outflows, according to RBC Capital Markets’ Chris Mauro. But while munis, equities, and other taxable fixed-income funds were each seeing outflows in early August, he noted in a recent post on fund flows, only tax-exempt funds continued to see outflows by month’s end.
“While recent muni outflows have been rather modest and not nearly at the pace we saw last winter,” Mauro wrote, “we do find it unsettling that, at the moment, munis seem to be the only asset class squarely out of favor with mutual fund investors.”
In economic news, the Labor Department reported Friday that U.S. employers added no jobs in August, shocking market expectations and leaving the unemployment rate unchanged at 9.1%.
What’s more, numbers for July and June were revised downward by 58,000 jobs, showing a weaker labor market than economists perceived up to now.
The equities markets, accordingly, had a rough outing. The major indexes all ended the session down by at least 2.20% from Thursday’s close. The Dow Jones Industrial Average lost 253 points.
