Municipal bonds took direction from higher Treasury yields and moved as much as eight basis points softer in an illiquid and light trading session Tuesday.

The 10-year Municipal Market Data yield crossed 3.00% for the first time since April 2011. The 30-year yield rose to its highest level since May 2011.

Muni traders throughout the day said the market felt weaker, though a lack of actual trades made transparency and exact pricing difficult.

"It's trade by appointment only," a Boston trader said. "There is no positioning and you have to try to find someone on the other side of the trade. With no bonds trading you're just taking the bonds down in sympathy with Treasuries, but there is not a lot of transparency. There is not the higher quality flow that you see on a regular basis. So it's hard to see whether things are off five basis points or not."

One New York trader said the long-end of the curve was as much as seven basis points weaker, following Treasuries. "Rates are up in Treasuries. Puerto Rico continues to flood bids-wanted."

Trade volume was light as most of the new issues in the primary market were expected to price Wednesday. Trading on Thursday and Friday is expected to be light due to the Rosh Hashanah holiday.

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

Yields on California's Golden State Tobacco Securitization Corp. 5s of 2030 rose 12 basis points to 5.18% and Bucks County, Pa., 5s of 2020 rose two basis points to 2.50%.

Yields on Davenport, Iowa, 4s of 2020 and Ector County, Texas, Independent School District 3.5s of 2038 rose two basis points each to 3.08% and 5.16%, respectively.

Yields on California 5s of 2023 and New Jersey State Turnpike Authority 5s of 2035 increased one basis point each to 3.46% and 5.08%, respectively.

Still, outside these trades, illiquidity remained an issue. "Munis are following Treasuries in spite of how quiet it is," a second New York trader said. "People are back at their desks today but it's hard to gauge the market."

"I'm doing trades, but it feels quiet," a second New York trader said. "It feels a few basis points weaker but there aren't enough trades going through."

The triple-B rated sector experienced the most fallout from illiquidity and investors withdrawals.

"Triple-B is playing catch up. Six weeks ago it was all the triple-A paper selling off and triple-B was hanging in there because there were no trades," the Boston trader said. "So as everyone got redemptions they were selling what they could - which was high quality bonds. Now that funds have run out of triple-A and double-A paper to sell, they are starting to sell the lower quality bonds."

The Standard & Poor's National AMT-Free Municipal Bond Index, which has returned negative 5.58% year to date, has performed worse as bonds in the index moved lower in credit quality. The Standard & Poor's Municipal Bond A Rating Band Index returned 5.10% through the end of August while the Standard & Poor's Municipal Bond BBB Rating Band Index posted a negative 6.77% for the year.

The high-yield index had a nearly 7% negative return for the first eight months of the year, posting losses of 6.87% as tracked by the Standard & Poor's Municipal Bond High Yield Index.

Similarly, the triple-A Barclays Municipal Bond Index returned 0.87% for the month of August and negative 3.74% for the first eight months of the year. That compares to the triple-B Barclays Muni Bond Index which returned negative 3.88% for the month of August and negative 8.00% this year through Aug. 31.

Monday, yields on the triple-A Municipal Market Data scale ended as much as eight basis points weaker. The 10-year yield increased eight basis points to 3.02% and the 30-year yield rose four basis points to 4.49%. The two-year finished flat at 0.43% for the 34th straight session.

Yields on the Municipal Market Advisors scale ended as much as six basis points higher. The 10-year and 30-year yields rose five basis points each to 3.14% and 4.59%, respectively. The two-year closed unchanged at 0.55% for the 13th session.

Treasuries ended softer Tuesday. The 10-year and 30-year yields rose 11 basis points each to 2.86% and 3.79%, respectively. The two-year yield increased three basis points to 0.42%.

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