Treasury bonds rocketed higher after the employment report was released on Friday, but municipals lagged in light trading.
The U.S. labor markets improved moderately in September as nonfarm payroll jobs increased 156,000 on gains in service-producing businesses.
The increase in jobs was in line with market expectations and represented a rebound from August, when non-farm payroll jobs fell a revised 41,000, little changed from the originally reported decline of 39,000.
Even though the jobs numbers came in as expected, short-covering and outright buying sent Treasury prices 1 1/4 points higher on the long end. The yield on the 30-year bond was quoted right around 6% before the data, but was soon quoted at 5.92%. The government market held onto those gains for the entire session. Municipals were quoted up 1/4 to 1/2 point on average. high-grade bond yields were said to drop five basis points.
Some bonds managed gains of one point or slightly more. For example, California general obligation 4 3/4s of 2023 were quoted late Friday at 91 5/8-92 to yield 5.31% on the bid-side. The same bond was quoted at 90 7/8-91 1/4 to yield 5.36% late Thursday. Underwriters, meanwhile, were able to dish off bonds from new deals at a faster pace than before the employment report was released.
In the debt futures market, the December municipal contract settled up 25/32 to 105.06, just off the high of 105.08. The contract made a low mark of 104.09. The MOB spread widened to negative 496 from negative 476 on Thursday as governments far outpaced municipals.
Tax-exempt secondary trading was light, despite the gains. Some market players said a price jump based on the employment report was unjustified.
"Guys who made money after buying bonds at cheaper prices earlier in the week want to sit on those profits and see what happens from here," one trader said. "We'll be watching new issue results to see if these levels hold. Some people are not convinced it's going to stay here."
Looking to supply, The Bond Buyer calculated 30-day visible supply at $6.57 billion Friday, up $1.18 billion from Thursday. And dealers expect $5.6 billion of new deals to be priced this week alone.
Several market players said Friday buyers are likely to remain picky at the current levels, while the forward calendar builds slowly.
"The market is still heavy and the buyers are still concerned enough about where we are they're holding off," said one underwriter. "The calendar is likely to gradually increase and that will be an obstacle for a while."
Recently, demand for new bond issues has been anemic, while their number has increased. One underwriter estimated Friday that a new wave of refundings could hit if yields fall another 10 to 15 basis points. Since the week of Sept. 3, weekly total municipal debt sales has averaged $5.34 billion. In the preceding 34 weeks, weekly total bond sales averaged $6.79 billion. For the year, the average has been $6.58 billion.
Most negotiated deals set for sale this week are below $200 million. Among the notable exceptions are $600 million Salt River Project Agriculture Improvement Power District., Ariz. electric system refunding revenue bonds, to be priced by Bear, Steams & Co.; $270 million Atlanta, Ga., water and sewerage revenue bonds, to be priced by Merrill Lynch & Co.; and $215 million Ohio Building Authority workers compensation facility revenue refunding bonds, to be priced by Smith Barney Shearson.
In the competitive arena, four sizable offerings are expected to be sold. Dominating the slate are $140 million California refunding bonds, to be sold Thursday; $178 million University of California refunding revenue bonds, to be bids for Wednesday; $155 million Baltimore County, Md. bonds, also to be sold Wednesday; and $125 million Los Angeles Department of Water and Power revenue bonds, to be bid for tomorrow.
Several big note deals are also expected to hit the market this week. New York City will sell $650 million of 5 1/2-month fiscal improvement tax anticipation notes, and Pennsylvania will sell $400 million 8 1/3-month tax anticipation notes.
Traders reported light bid-wanted activity and secondary block trading. Reflecting the light secondary activity last week, The Blue List of dealer inventory fell $22.8 million Friday to $1.87 billion.
In late dollar bond action, prices were quoted anywhere from 1/4 to just over one point higher.
New York City Group C 5 3/8s of 2022 were quoted at 5.80% bid, less 1/8; Port Authority of New York and New Jersey 5 1/8s of 2021 were quoted 99-1/4 to yield 5.19%; and Florida Municipal Power AMBAC 4 1/2s of 2027 were 91 5/8-92 to yield 5.31%. In the short-term note market, yields were quoted one to as much as three basis points higher.