The municipal market was slightly firmer Friday, following Treasuries, which showed gains after the non-farm payrolls report showed a loss of jobs for the fifth straight month in May, and the unemployment rate spiked by the largest amount in 20 years.

Traders said tax-exempt yields were lower by one or two basis points.

"It's a little firmer based on the unemployment number," a trader in New York said. "I wouldn't say it's a rally. People are a little less anxious about holding bonds and now are marking them up a bit. The market's up maybe a basis point or two."

Trades reported by the Municipal Securities Rulemaking Board Friday showed some gains. Bonds from an interdealer trade of insured University of California 4.5s of 2035 yielded 4.73%, down two basis points from where they traded Thursday. Bonds from an interdealer trade of California Rural Home Mortgage Finance Authority 5.4s traded at 4.56%, unchanged from where they traded Thursday. Bonds from an interdealer trade of insured Miami-Dade County 5.25s of 2038 yielded 5.35%, down four basis points from where they traded Thursday.

"Obviously, we're looking at a strong Treasury market, with a strong sell-off in stocks," a trader in Los Angeles said. "There's some movement in munis, but I would have expected it to be a better day than it was. I've seen some offers that haven't changed since five in the morning. Given what's going on in stocks and Treasuries, it's kind of disappointing."

In the Treasury market Friday, the yield on the benchmark 10-year Treasury note, which opened at 4.04%, finished at 3.94%. The yield on the two-year note was quoted near the end of the session at 2.42%, after opening at 2.50%.

The employment report released Friday showed 49,000 jobs were lost in May after a loss of 20,000 jobs the previous month. Economists polled by IFR Markets had predicted a loss of 60,000 jobs.

The unemployment rate jumped to 5.5% in May, after 5.0% the previous month. Economists polled by IFR had predicted a 5.1% unemployment rate.

"The unemployment rise looks scary, but the reality is that we never really should have gone down the way we did in April," said Joel Naroff of Naroff Economic Advisors.

He said the unemployment rate "probably should have filtered up a bit in April," but didn't due to seasonal adjustments.

"If we had gone up to 5.3% in April, the 5.5% in May wouldn't have people overreacting. What happened in April probably shouldn't have happened," he said. "The labor market is soft but not collapsing. We're not looking at the kind of catastrophe the market seems to think we're at right now. But it's still moving up, the labor market is softening, and that's not good news. It indicates we still have some tough times ahead."

In the new-issue market Friday, Goldman, Sachs & Co. priced for retail investors $700 million of building aid revenue bonds for the New York City Transitional Finance Authority. The bonds mature from 2010 through 2029, with term bonds in 2033 and 2038. Yields range from 2.30% with a 3% coupon in 2010 to 4.80% with a 4.75% coupon in 2038. Bonds maturing in 2033 were not available for retail. The bonds, which are callable at par in 2018, are rated A1 by Moody's Investors Service, AA-minus by Standard & Poor's, and A-plus by Fitch Ratings.

In other economic data, merchant wholesalers posted a 1.3% increase in inventories in April, while sales jumped 1.4% in the month. Inventories of merchant wholesalers grew to $427.4 billion, following an upwardly revised 0.1% increase to $421.7 billion in March. Meanwhile, sales of merchant wholesalers rose to about $390.3 billion, following March's revised 1.8% increase to $385.1 billion. Economists polled by IFR Markets predicted a 0.5% increase in wholesale inventories, and 0.5% growth in wholesale sales.

A slate of economic data will be released this week, starting today with the April pending home sales index. On Thursday, initial jobless claims for the week ended June 7, and continuing jobless claims for the week ended May 31 will be released, alongside May import prices, May retail sales, April business inventories, and April business sales. Then, Friday, the May consumer price index and core CPI will be released, along with the preliminary June University of Michigan consumer sentiment index.

Economists polled by IFR Markets are predicting an 82.6 level for the pending home sales index, 365,000 initial jobless claims, 3.120 million continuing jobless claims, a 0.5% rise in retail sales, a 0.7% increase in retail sales excluding autos, a 0.3% gain in business inventories, a 1.8% uptick in business sales, 0.5% growth in the CPI, a 0.2% jump in the core CPI, and a 59.8 Michigan sentiment index.

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