The tax-exempt market ended the first week of 2013 on a relatively quiet note despite a major Treasury selloff followed by a fiscal cliff resolution and hawkish Federal Open Market Committee comments.

Traders throughout Friday – and the entire week – said munis outperformed their taxable counterparts and didn’t see as big a selloff.

“It should be weaker but it’s not really,” a Chicago trader said. “Customers put out four offerings and they were all gone within five minutes and none were particularly cheap. So it’s a little weaker but not formidable.”

He added 10-year muni yields are particularly attractive now compared to 10-year Treasuries. “The spread has gotten a lot wider on the 10-year Treasury. So the Treasury market has weakened but munis are holding in there.”

The market should have a better handle on where rates are going once more supply hits the market next week, the trader added.

Other traders agreed the market ended mostly flat. “It seems flat,” a Virginia trader said. “Treasuries are weaker so I think munis are generally taking their lead from Treasuries. But we are outperforming and munis are lagging.”

He added with limited news for trading in the muni market, all cues are coming from Treasuries.

“It was a relatively quiet start to the year,” wrote Dan Toboja, vice president at Ziegler Capital Markets. “The fiscal cliff talk has left more questions than answers as participants don’t want to take risk ahead of what could still be a knock to the tax-exemption of munis in only a couple months.”

He added, “There is some concern in the market that is keeping activity muted. Several deals were put on hold at the end of the year due to market uncertainty. Now there may be more supply than the market was prepared for in the first weeks of the month. Until the supply picture and the cliff picture become clear there will be more limited trading and still some challenged liquidity.”

In the secondary market, trades compiled by data provider Markit showed weakening. Yields on Ohio’s Buckeye Tobacco Settlement Financing Authority 5.875s of 2047 jumped four basis points to 6.70% while Illinois 5.1s of 2033 increased three basis points to 5.25%.

Yields on San Jose, Calif., Airport 6.6s of 2041 and New York City Municipal Water Finance Authority 5s of 2047 rose two basis points each to 5.14% and 3.34%, respectively.

On Friday, the Municipal Market Data scale finished slightly weaker for the third consecutive session. The 10-year and 30-year yield rose two basis points each to 1.80% and 2.89%, respectively. The two-year closed flat at 0.36% for the third consecutive session.

Treasuries were mixed Friday. The benchmark 10-year yield rose one basis point to 1.92% while the 30-year yield fell one basis point to 3.11%. The two-year was steady at 0.28%.

In economic news Friday, the December employment report came in largely as expected, with a 155,000 gain in payrolls and unemployment holding at 7.8%.

“This is a constructive report from an economic growth perspective,” wrote economists at RDQ Economics. “Employment continued to expand at a moderate rate in the final three months of 2012 despite the uncertainties over the fiscal cliff. Apart from the moderate pickup in private employment in the last three months versus the last year, there were other positives within the report including the strengthening in wage growth, the increase in the workweek, and increases in employment in the key sectors of construction and manufacturing.”

They added, “However, employment growth has not been strong enough to make further inroads into lowering the unemployment rate — the key variable for Fed policy — even though the participation rate has been flat since September.”

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