The tax-exempt market ended weaker Thursday, following Treasuries, as $5.5 billion of California notes and $121.7 million of Chicago Parks District bonds priced in the primary market.

Traders said municipal yields followed Treasury yields higher as the 10-year Treasury yield broke through a key marker on fears that the Federal Reserve would scale back its $85 billion a month bond purchasing program after better-than-expected economic news released Thursday morning.

"It continues to be soft," a Chicago trader said. "The 10-year Treasury broke a wall. First we thought the range was from 2.50% to 2.80% Then we broke to 2.82%. So now the range is either 2.60% to 2.80% or 2.75% to 3.00%. And that's a whole different mindset. We are either at the top end on the old range or the bottom end of a new range."

Thursday morning, sellers emerged early and didn't slow. One New York trader said yields felt as much as four basis points weaker, though bonds within five years felt stronger. "There are lots of bids wanted out there," the trader said. "But munis are also following Treasuries."

In the primary market Thursday, JPMorgan priced and repriced $5.5 billion of California revenue anticipation notes, rated MIG-1 by Moody's Investors Service, SP-1-plus by Standard & Poor's, and F1 by Fitch Ratings, capturing the lowest yields in over four decades.

The first series of $1.5 billion yielded 0.21% with a 2% coupon in 2014. Yields were lowered one basis point from preliminary pricing Thursday morning. In retail pricing Wednesday, prospective yields ranged from 0.18% to 0.23%.

The second series of $4 billion yielded 0.23% with a 2% coupon in 2014. Yields were lowered one basis point from preliminary pricing. In retail pricing, prospective yields ranged from 0.20% to 0.27%.

Yields were the lowest since 1971 when California began tracking the data. When California issued $10 billion of RANs in August 2012, the May 2013 maturities yielded 0.33% and the June 2013 maturities yielded 0.43%.

Retail investors bought $1.65 billion of the deal, representing 29.7% of the total offering, while institutional investors placed $8.6 billion in orders. The Treasurer's office said the majority of institutional orders came from money market funds.

"We received excellent demand for the RANs and an outstanding price for taxpayers," said state Treasurer Bill Lockyer in a statement. "The results add to the accumulating evidence of growing investor confidence in California's fiscal management. The size of the RAN sale itself illustrates one factor driving the State's stronger market standing. The $5.5 billion is about half of last year's $10 billion, and that reflects the State's much-improved cash position."

Another deal traders eyed Thursday came from BMO Capital Markets with $121.7 million of Chicago Park District limited and unlimited tax bonds, rated A1 by Moody's, AA-plus by Standard & Poor's, and AA by Fitch.

"The parks deal did OK if things keep going the way it's going," the trader said. "But it's already taken a toll. We are getting the Detroit magnetic pull." This trader said the deal priced about where he thought it should price. "It could go 10 or 15 basis points wider or narrower in a run up or selloff and there is more room on this lesser-quality stuff without as much hoopla."

Yields on the first series of $49.9 million of limited tax GOs, ranged from 1.11% with a 4% coupon in 2016 to 5.48% with a 5.75% coupon in 2038. Bonds maturing in 2015 were offered via sealed bid. The bonds are callable at par in 2024.

Yields on the second series of $33.4 million of limited tax GO refundings, ranged from 1.59% with a 4% coupon in 2017 to 3.87% with a 5% coupon in 2023.

The third series of $2.5 million of unlimited tax GOs, maturing in 2015, were offered via sealed bid.

Yields on the fourth series of $35.9 million of unlimited tax GO refundings for the Harbor Facilities alternative revenue source ranged from 1.06% with a 4% coupon in 2016 to 4.00% with a 5% coupon in 2024. Bonds maturing in 2015 were offered via sealed bid.

In the secondary, trades compiled by data provider Markit showed weakening.

Yields on University of Cincinnati 5s of 2023 jumped seven basis points to 3.49% and Michigan Finance Authority 5s of 2039 rose five basis points to 5.31%.

Yields on Austin, Texas, Community College District 5s of 2036 rose five basis points to 4.81% and California's Golden State Tobacco Securitization Corp. 5.3s of 2037 rose four basis points to 7.75%.

Yields on West Travis County, Texas, Public Utility Agency 4.5s of 2031 and Virginia Commonwealth Transportation Board 5s of 2022 rose three basis points each to 4.80% and 2.96%, respectively.

Thursday, yields on the Municipal Market Data scale ended as much as five basis points higher. The 10-year yield rose five basis points to 2.85% and the 30-year yield increased four basis points to 4.37%. The two-year finished flat at 0.43% for the 22nd consecutive session.

Yields on the Municipal Market Advisors scale ended as much as six basis points higher. The 10-year yield rose five basis points to 3.00% and the 30-year yield climbed four basis points to 4.46%. The two-year yield rose one basis point to 0.55%.

Treasuries ended weaker Thursday, though they pared some losses from the morning session. The 10-year and 30-year yields rose six basis points each to 2.77% and 3.81%, respectively. The two-year yield rose two basis points to 0.35%.

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