The municipal market on Friday followed up one of the wildest days of the year with stable yields and surprisingly active trading.
Several bid-wanteds from large money managers surfaced late Friday morning. There was also a lot of crossover inquiry evident due to the highly favorable muni-Treasury ratios, a trader in New York said.
And while a typical Friday session generates roughly $8 billion in face-amount volume, this past Friday saw levels that passed $10 billion. “It was definitely a very active day for a Friday,” the trader said.
The Municipal Market Data triple-A scale ended the week’s final trading session flat. One day earlier, of course, muni yields were anything but.
The benchmark 10-year muni yield held steady, closing the week at 2.38%. It equaled its lowest yield in almost 10 months, dating to Oct. 21. It had dropped 29 points in a week.
The 30-year muni yield ended at 3.95%, its lowest since early November. Its yield dropped 40 basis points over the week.
The two-year muni yield held at 0.35%, its lowest yield since Aug. 31, 2010.
Treasury yields softened after Thursday’s monster truck rally. The 10-year Treasury yield jumped 14 basis points to 2.56%, backing off the lowest level it’s achieved since Oct. 12.
The two-year Treasury yield inched up one basis point from its lowest level ever to 0.28%.
After falling 21 basis points on Thursday and 67 basis points on the week, the 30-year yield took a break from its plunge. It shot up 16 basis points on the day to 3.84%.
Supply has been tagged as one reason behind the falling muni yields. And the situation will likely get worse. The industry predicts that municipal bonds expected to be sold this week will total $2.25 billion versus a revised $3.24 billion last week.
Munis have had a nice run, but traders said Friday that they now need to prove the levels yields have reached. Some added that the most compelling ratios to Treasuries in a long time should have been sufficient to drive activity on the day.
Traders are looking for any conviction of the market’s direction. If a correction to softer yields is due, it could come as soon as this week.
In economic news, the employment picture improved beyond expectations, but otherwise not too significantly overall, according to new numbers the Labor Department reported Friday. Employers added 117,000 total jobs in July and 154,000 private workers. The unemployment rate ticked down to 9.1%, on a seasonally adjusted basis.
Economists polled by Thomson Reuters predicted an increase of 90,000 total jobs and 115,000 private payrolls, according to the median estimate. They expected the unemployment rate to be 9.2%.
Traders pointed to the Bureau of Labor Statistics report as an important indicator for the week, after recent markers gave a darker assessment of the economy’s recovery efforts. A negative report would resonate poorly, they noted on Thursday, and would likely throw the stricken equities markets further into despair.
Speaking of which, after spending a day in the shark tank getting ripped apart, the equities markets stabilized. The major indexes ended a particularly volatile day mixed, with the Dow Jones Industrial Average pacing the markets, rising almost 61 points.