The municipal market sold off Friday, heading into the three-day Labor Day weekend with a third consecutive session of rising yields after weeks of historic firmness.
Traders said tax-exempt yields were higher by three to five basis points. Tax-exempts have now opened September with an uptick in yields the first three sessions of the month after doing so just once the entire month of August.
“The market is backing up a bit,” a trader in Los Angeles said. “There’s been a fair amount of profit-taking today, after that payrolls report. There’s a feeling that we’re going to continue to weaken once we get some new supply in here this month, and you could definitely feel that weakness today, though not supply-related.”
Nonfarm payrolls fell for a third consecutive month in August, shedding 54,000 jobs, according to data released Friday by the Labor Department. However, economists expected total nonfarm payrolls to fall by 131,000 and the market viewed the smaller figure and significant upward revisions to the number of jobs previously reported lost in June and July as positives for the economy.
The Municipal Market Data triple-A scale yielded 2.25% in 10 years and 3.33% in 20 years Friday, following 2.20% and 3.29% Thursday. The scale yielded 3.72% in 30 years Friday, following 3.69% Thursday.
Before the sell-off at the end of last week, 10-year muni yields had dropped to all-time lows 12 times in the previous 17 sessions. Thirty-year tax-exempts set record lows four times in the previous eight sessions and 20-year munis established all-time lows five times during the same time period.
The record lows currently stand at 2.17% and 3.67% for 10- and 30-year tax-exempts, and both marks were set Aug. 25. The 20-year low of 3.28% was set Aug. 31.
Friday’s triple-A muni scale in 10 years was at 83.0% of comparable Treasuries and 30-year munis were at 98.2%, according to MMD, while 30-year tax-exempt triple-A general obligation bonds were at 109.1% of the comparable London Interbank Offered Rate.
The Treasury market showed losses Friday. The benchmark 10-year note was quoted near the end of the session at 2.71% after opening at 2.63%. The 30-year bond was quoted near the end of the session at 3.79% after opening at 3.72%. The two-year note was quoted near the end of the session at 0.52% after opening at 0.49%.
Trades reported Friday by the Municipal Securities Rulemaking Board showed losses. A dealer bought from a customer insured California 5s of 2022 at 3.39%, up four basis points from where they traded Thursday. A dealer sold to a customer Massachusetts Health and Educational Facilities Authority 5.25s of 2023 at 6.20%, up five basis points from where they traded Thursday.
A dealer sold to a customer taxable Huntsville, Ala., Build America Bond 5.06s of 2030 at 5.08%, up three basis points from where they traded Thursday.
In economic data released Friday, nonfarm payrolls for July and June were revised upward to show respective declines of 54,000 and 175,000 positions. The unemployment rate rose to 9.6% in August from 9.5% in July.
“The unemployment rate edged up to 9.6% as more workers entered the labor force than could find jobs,” said Diane Swonk, chief economist at Mesirow Financial.
The services sector expanded at the slowest pace in seven months in August as the Institute for Supply Management’s non-manufacturing business activity composite index fell to 51.5 in data released Friday. Economists polled by Thomson Reuters had expected a 53.5 level.
Activity in the new-issue market was light Friday.