WASHINGTON - Tax-exempt issuers will face a generally difficult and volatile economy in 2009, one that will challenge issuers as they try to sell debt during a recession expected to continue until at least the third quarter, economists and market participants said.

For the municipal market, there's hope in retail investors. Traders and analysts said long-term muni bonds are among the cheapest assets in the fixed-income sector. Alluring muni yields, coupled with federal economic recovery programs and low rates on Treasuries, will increase retail appetite for tax-exempt debt, sources said when asked about their outlook for the coming year.

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