The municipal market was weaker by about five basis points Friday, despite October nonfarm payrolls data coming in lower than expected, but with a big revision to the September data.
“The last time we had a 10 basis point sell-off in Treasuries was the last payroll data that came out, and here we are again with another 10 basis point sell-off in the front-end, and it is all payroll-induced,” said George Goncalves, Treasury and agency strategist for Banc of America Securities LLC. “The headline number was weaker than expected, but you’ve got to look beyond that and see the unemployment number was at 4.4%, down from 4.6%, plus there’s the [significantly upwardly] revised payroll numbers from the prior month that the market has latched onto. Throw on top of that some higher-than-expected hourly wage earnings and moving at a fast year-over-year pace, and this is what you get.”
Nonfarm payrolls rose 92,000 in October, while the unemployment rate declined. With the October rise in payrolls and the labor force rising, the unemployment rate fell to 4.4% from 4.6%, and total employment rose to 145.3 million, from 135.6 million in September. The 92,000 October payroll gain followed an upwardly revised 148,000 rise in September, originally reported as a 51,000 increase. Economists polled by IFR Markets had predicted the October payroll level would rise by 133,000, and unemployment would remain at 4.6%.
“Treasuries had a major sell-off with that revised payroll info, and munis definitely followed,” a trader in New York said. “But there is a bit of a lack of participation that has started to take hold, as it is a Friday. Quick morning and flat afternoon for sure. But this move will rejuvenate retail and get them going next week. Hopefully we can move these yields up some more and we’ll get that sector going.”
Trades reported by the Municipal Securities Rulemaking Board Friday showed losses. A dealer sold to a customer insured Arlington, Tex., 5s of 2016 at 3.82%, five basis points higher than where they traded Thursday. Bonds from an interdealer trade of North Carolina 5s of 2016 at 3.56%, three basis points higher than where they were sold Thursday. A dealer sold to a customer University of Texas 5s of 2013 at 3.70%, up six basis points from where they traded Thursday. A dealer bought from a customer New York State Dormitory Authority 5s of 2031 at 4.17%, seven basis points higher than where they were sold Wednesday.
The Treasury market sold off Friday. The yield on the benchmark 10-year Treasury note finished at 4.72%, after opening at 4.60%. The yield on the two-year note, which opened at 4.69%, was quoted near the end of the session at 4.82%.
In other economic data released Friday, October wages rose 0.4% to $16.91 per hour on average, from a revised level of $16.85 in September. The 0.4% rise was slightly more than the 0.3% increase projected by economists polled by IFR Markets.
Average weekly earnings rose 0.7% to $573.25, from a revised level of $569.53 the previous month.
Also, on a year-over-year basis, average hourly earnings increased 3.9%, and average weekly earnings increased 4.2%.
George Friedlander, managing director and fixed-income strategist at Citigroup Global Markets, Inc., said tax-exempts weakened so quickly Friday because much of the rally experienced earlier in the week was predicated on the belief that the economy would weaken significantly in 2007, which would pull inflation back inside the Federal Reserve Board’s comfort level, thus giving the Fed “significant room to ease next year.”
“A lot of that was disavowed in one set of numbers Friday,” he said.
Friedlander said some people are now giving less credence to the nonfarm payrolls data, after semi-annual benchmark payroll revisions last month revealed 800,000 additional jobs, along with the fact that the September payrolls figure was upwardly revised Friday by nearly 100,000 jobs.
“People are interpreting it differently, and they are learning not to take those numbers as seriously as being the truth,” he said. “So you get both an adjustment in what they mean and another adjustment in how exact they are.”
The new-issue calendar was very light Friday.
