The municipal bond market was firmer Friday in moderate trading, as the December non-farm payrolls number came in lower than expected. Traders said tax-exempts had improved by two to four basis points.“Things are looking pretty good, with munis up,” a trader in New York said. “Depending on how you look at it, this could be a good thing or it could be a bad thing. If you have been on the sidelines, without much inventory, and you came back from vacation to see the market up 20 basis points, you wring your hands. If you bought a lot of bonds and sat on them until the new year turned, then you are a happy man.”However, it remains to be seen how long the rally will last. While Treasuries often react to weak economic data, traders said a slowing economy could undercut the investment income flowing into munis. “The appetite continues to be there, though we don’t know how long this will last,” said a trader in Los Angeles. “The numbers aren’t looking too good for the economy and that puts pressure on people with money to buy.”Trades reported by the Municipal Securities Rulemaking Board Friday showed some gains. A dealer sold to a customer Washington County School District, Utah, 5s of 2009 at 2.95%, down one basis point from where they traded Thursday. Bonds from an interdealer trade of University of Chapel Hill, N.C., 5s of 2031 yielded 4.23%, down two basis points. A dealer sold to a customer insured Philadelphia 4.75s of 2031 at 4.55%, down three basis points. The Treasury market Friday was firmer. The yield on the benchmark 10-year Treasury note, which opened at 3.90%, was quoted near the end of the session at 3.87%. The yield on the two-year note closed at 2.75% after opening at 2.81%. In economic data Friday, December non-farm payrolls rose 18,000 after an upwardly revised gain of 115,000 last month, while the December unemployment rate grew 0.3% to 5% after being at 4.7% in November. The December Institute for Supply Management non-manufacturing index came in at 53.9 after a level of 54.1 the previous month. Economists polled by IFR Markets had predicted an additional 70,000 in payrolls, a 4.8% unemployment rate, and a reading of 53.8 on the non-manufacturing ISM index. “I always caution that we should not take one number as indicative of a trend, particularly the payrolls number with its history of revision,” said Carl Tannenbaum, an economic consultant. “However, I would say a small number of jobs created is consistent with the other economic indicators we have been getting lately, underlining the risk of the recession for 2008, and it will certainly contribute to the Fed’s difficult decision later this month on how much to reduce interest rates.”The new-issue calendar was light Friday.

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