The municipal market was unchanged to slightly weaker Friday, following the Treasury market, which showed some losses. “There’s not a lot out for the bid, I don’t see a lot of trades going on, and there is not a whole lot of interest,” a trader in New York said. “I’d say we’re unchanged to maybe a basis point cheaper.”“I would say our retail has been very good — these percentages to Treasuries have been above 90% and in some cases 100%, so that’s bringing them in,” the trader added. “It’s not running as it did in August only because the levels are richer than they were back then, but if you throw out last Wednesday and Friday, I would say the retail business is up about 40% over the past few weeks. It probably needs to go another 20% to get back to where it was, but at these levels you won’t see that until we get a little wider.”As a percentage of 30-year Treasuries, triple-A 30-year tax-exempt bonds now stand at 99.8%, according to Municipal Market Data. That compares to an average of 88.1%, and a high average of 102.3%, over the past year. The Treasury market was mostly weaker Friday, but showed some short-end gains. The yield on the benchmark 10-year Treasury note, which opened at 3.93%, was quoted recently at 3.95%. The yield on the two-year note was recently quoted at 3.02%, after opening at 3.04%.Friday’s Treasury yield increases compare to points in the week when 10-year Treasury yields have fallen drastically, as the market whipsawed between large gains and losses. According to Bill Hornbarger, chief fixed-income strategist at A.G. Edwards & Sons Inc., the large movements trace the latest news. “It’s not the economic data, it’s the headlines,” Hornbarger said. “Any day you get a headline that is negative on the economy, or the subprime housing situation, or another write-down, it obviously helps Treasuries. And anytime you get some news, like we got last night, where [Federal Reserve Board chairman Ben] Bernanke certainly seems like he made it pretty clear that the Fed stands ready to ease if financial conditions warrant it, or the news out [Friday] with the proposal to provide some relief for homeowners, with subprimes, that is going to hurt Treasuries.”That being said, Hornbarger believes that the worst of the headlines have come and gone, and that volatility in fixed-income markets will settle down.“I think we are starting to get to the point that the worst news is behind us,” Hornbarger said. “I think the fact that the Treasury stepped in and said we’re conscious of this, we’ll do what we have to do, I think that argues that volatility will settle down a little bit. I don’t think [yields] will go much lower.” In economic data released Friday, personal income rose 0.2% in October, after a 0.4% uptick the previous month. Additionally, personal consumption grew 0.2%, after a 0.3% gain the prior month. Economists polled by IFR Markets had predicted a 0.4% increase in personal income and a 0.3% rise in personal consumption.Also, the core personal consumption expenditures deflator climbed to 1.9% in October, after a revised 1.9% the previous month. The November Chicago purchasing managers’ index came in at 52.9, after a 49.7 reading the month before, while October construction spending fell 0.8%, after a revised gain of 0.2% the previous month. Economists polled by IFR Markets had predicted 1.8% reading for the core PCE deflator, a 49.7 level for the Chicago PMI, and a fall in construction spending of 0.3%.A slate of potential market-moving data will be released this week, most notably with the November non-farm payrolls report Friday. The Institute for Supply Management’s business activity composite index will be released today, followed by the ISM non-manufacturing index Wednesday. Initial jobless claims for the week ended Dec. 1 will be released Thursday, alongside continuing jobless claims for the week ended Nov. 24, and the preliminary December University of Michigan consumer sentiment index will be released Friday.Economists polled by IFR Markets are predicting that 65,000 new jobs were created in November, along with a 50.4 reading for the ISM index, a 54.8 level for the ISM non-manufacturing index, 335,000 initial claims, 2.563 million continuing claims, and a 76.0 Michigan sentiment reading.Activity in the new-issue market was light Friday.
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