Munis richened on Friday, as U.S. Treasuries saw gains and equities ended higher, after weaker-than-expected employment data.
Muni yields were bumped by two to four basis points, depending on the scale, while UST yields were two to five basis points firmer.
The nonfarm payrolls report suggests the Federal Reserve will be less likely to raise rates next month. That news helped munis cap off a strong week, wrote J.P. Morgan strategists led by Peter DeGroot. J.P. Morgan expects next week's issuance to see solid reception, as well.
"Friday's payroll-driven rate rally should help distribution of risky assets despite both long-end and healthcare being more heavily offered this week, in an otherwise light week for secondary offerings," DeGroot and others wrote. "The weaker payroll data appears timely given a calendar that is skewed toward the richer longer portion of the curve and the fully valued healthcare sector over the week."
Employment report
After the nonfarm payrolls report showed jobs were lost, but the unemployment rate fell, Treasury yields fell four to eight basis points, with the biggest drop in three- to five-year yields and long bond yields down the least, FHN Financial Chief Economist Chris Low said.
It also caused a decline in the odds of a September rate hike, he said.
"From the Fed's point of view, the hawks will likely point to the falling unemployment rate as a threat, but the average hourly earnings chart is the one they should be looking at," according to Low. "Nominal average hourly earnings growth has slowed substantially in the past year. Real average earnings are down more, of course, because inflation has popped. Real earnings growth is weak enough to make it difficult to raise prices without losing sales."
"The magnitude of the payroll miss suggests the labor market may be losing momentum and can no longer be considered the pillar of strength," said Charlie Ripley, senior investment strategist for Allianz Investment Management. "This report squarely puts the spotlight back on the employment side of the Fed's mandate. The Fed is unlikely to ignore this signal, and, if anything, it raises the bar for any Fed rate increases heading into the fall."
Jennifer Timmerman, senior investment strategy analyst at Wells Fargo Investment Institute, said, "A drop in shorter-term U.S. Treasury yields is responsible for a bull steepening of the yield curve as Fed-fund futures data dial back expectations of an imminent Fed rate hike by yearend." But, she noted, an increase by yearend is priced in.
Primary to come
Issuance is an estimated $9.65 billion for the week of August 10, with $6.61 billion of negotiated deals on tap and $3.04 billion of competitives, according to LSEG.
The California Health Facilities Financing Authority leads the negotiated calendar with $1.48 billion of Sutter Health revenue bonds.
The competitive calendar is led by Miami-Dade County, Florida, with $455.31 billion of capital asset acquisition special obligation bonds.
