Demand among retail investors surged yesterday for New York City general obligation paper and California revenue anticipation notes, even as secondary market conditions remained soft. Traders said tax-exempt yields were higher by six to eight basis points.

"It's bad. There continues to be a lot of selling pressure crushing everything around," a trader in New Jersey said. "It makes it very difficult for new issuers to come to market. It's brutally painful; you're taking losses on everything."

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