The municipal market was weaker Friday, following Treasuries. Traders said tax-exempt yields were higher by three or four basis points.
"We're definitely selling off a bit," a trader in New York said. "The only thing that's working against it is it's Friday and there aren't a lot of people around or doing anything. The short end is not off quite as much, because there's still a lot of demand. It's very oversold. But overall, we're off a good four basis points."
Trades reported to the Municipal Securities Rulemaking Board were weaker. Bonds from an interdealer trade of California 5.125s of 2036 yielded 5.23%, up two basis points from Thursday. Bonds from an interdealer trade of Metropolitan Transportation Authority 5s yielded 5.10%, up a basis point from Thursday. Bonds from an interdealer trade of New York's Triborough Bridge and Tunnel Authority 5s of 2038 yielded 4.88%, up six basis points from Thursday.
"You need a resuscitator to get this thing going," a trader in Chicago said. "It's kind of like it was DOA. There's not much going on, people are just kind of adjusting after a rough week. The market's heavy, and we're off a couple basis points, but the market's not really doing much of anything."
The Treasury market showed losses Friday. The yield on the benchmark 10-year Treasury note, which opened at 3.99%, finished at 4.10%. The yield on the two-year note was quoted near the end of the session at 2.67% after opening at 2.49%.
After rising Friday morning before being "knocked around a bit by the convexity in the mortgage-backed market," Treasury yields shot up at the end of the day on hawkish comments from Federal Reserve Bank of MinneapolispPresident Gary Stern, according to T.J. Marta, an interest rate strategist at RBC Capital Markets. In an interview with Bloomberg, Stern said the Fed could not wait for the market to recover before raising interest rates to fight inflation.
"We can't wait until we clearly observe the financial markets at normal, the economy growing robustly, and so on and so forth, before we reverse course and begin raising rates," Stern said Friday. "Our actions will affect the economy in the future, not at the moment. Forecasts play a critical role."
Next week, Treasuries will likely take their cues from equities due to the lack of economic data set for release, Marta said.
"As for next week, there's not a whole lot of data so really we expect the curve to have a flattening bias due to Treasury auctions next week," Marta said. "And we expect yields in the curve to be somewhat at the mercy of earnings reports."
The economic calendar was light Friday.
A slate of economic data will be released this week, beginning today with the June composite index of leading economic indicators. On Thursday, initial jobless claims for the week ended July 19 will be released, along with continuing jobless claims for the week ended July 12, and June existing home sales. On Friday, durable goods orders for June, new home sales for June, and the final July University of Michigan consumer sentiment index will be released.
Economists polled by IFR Markets are predicting a 0.1% drop in LEI, 375,000 initial jobless claims, 3.120 million continuing jobless claims, 4.940 million existing home sales, a 0.4% decline in durable goods, a 0.2% dip in durable goods excluding transportation, 505,000 new home sales, and a 56.4 reading of the University of Michigan sentiment index.
Activity in the new-issue market was light Friday.
