The municipal bond market continued its rally for the third straight session as cash on the sidelines created demand in the primary and buyers continued to push prices higher in the secondary.

“I was hoping for a turnaround and it happened,” a Los Angeles trader said, adding he was selling bonds to pocket a profit. He said primary deals went very well earlier in the week and the secondary was higher on Thursday.

Other traders agreed the buying spree continued. “They are still buying,” a New York trader said.

“The market is up and away,” a New Jersey trader said. “A week later everything is hunky-dory in muni world,” he said, referring to the losses seen after the Fed announced QE3.

“There was a massive sell off a week ago and everything has snapped backed these last three trading days. Everything that was lost last Friday has been gained back and then some.”

He added the primary market set the tone Tuesday and Wednesday for a busy secondary Thursday. “It’s been so busy in the secondary today I haven’t been focused on the primary. But the bottom line is new issues have been received well. The primary priced and was well received and now the bid side is up a good nickel.”

In the primary market Thursday, Siebert Brandford Shank & Co. priced for institutions $569.8 million of Connecticut general obligation and refunding bonds, rated Aa3 by Moody’s Investors Service and AA by Standard & Poor’s, Fitch Ratings, and Kroll Bond Rating Agency.

Yields on the first series, $219.9 million of GO SIFMA index bonds, were priced at par maturing between 2014 and 2024 with spreads ranging from 23 basis points to 92 basis points above the SIFMA index.

Yields on the second series, $280.1 million of GOs, ranged from 1.76% with 2%, 3%, and 4% coupons in a split 2020 maturity to 3.15% with 3.125% and 4% coupons and 2.79% with a 5% coupon in a split 2032 maturity. The bonds are callable at par in 2022. Yields were lowered between three and nine basis points on the short end from retail pricing.

Bonds in the third series, $69.8 million of GO refunding bonds, yielded 0.34% with 3% and 4% coupons in 2014 and 0.46% with a 4% coupon in 2015. Bonds maturing in 2013 were offered via sealed bid. Yields were lowered two basis points from retail pricing.

Morgan Stanley priced $271.5 million of Dallas and Fort Worth International Airport joint revenue refunding bonds, subject to the alternative minimum tax. The credit is rated A1 by Moody’s and A-plus by Standard & Poor’s and Fitch.

Yields ranged from 0.66% with a 5% coupon in 2014 to 3.95% with a 5% coupon in 2035. Bonds maturing in 2013 were not formally re-offered. The bonds are callable at par in 2020.

Bank of America Merrill Lynch priced $255.6 million of Honolulu wastewater system revenue bonds, rated Aa2 by Moody’s and AA-plus by Fitch.

Yields on the first series, $134.7 million, ranged from 0.86% with a 2% coupon in 2017 to 3.24% with a 5% coupon in 2042. The bonds are callable at par in 2022.

Yields on the second series of $120.9 million, ranged from 0.39% with a 3% coupon in 2014 to 3.00% with a 4% coupon in 2030. The bonds are callable at par in 2022.

In the secondary market, trades compiled by data provider Markit showed strengthening. Yields on Hawaii 5s of 2019 dropped five basis points to 1.46% while Tennessee Energy Acquisition Corp. 5.25s of 2018 fell four basis points to 3.14%.

Yields on Connecticut 5s of 2027 and New York’s Metropolitan Transportation Authority 4.75s of 2029 fell two basis points each to 2.54% and 1.55%.

Yields on New Jersey Economic Development Authority 5s of 2038 fell two basis points to 3.54% while Puerto Rico Electric Power Authority 5s of 2042 fell one basis point to 5.08%.

On Thursday, the 10-year Municipal Market Data yield plunged five basis points to 1.81% while the 30-year yield fell four basis points to 2.95%. The two-year closed at 0.29% for the 40th consecutive session.

The gains pushed muni yields back down to levels last seen on Sept. 11, erasing losses and then some after the Fed announced QE3.

Treasuries finished steady Thursday, paring most of the gains made in the morning. Overall, the two-year yield ended flat at 0.27% while the benchmark 10-year yield closed steady at 1.78%. The 30-year yield fell one basis point to 2.96%.

Looking ahead to year-end issuance, one muni strategist is predicting $365 billion for total 2012 issuance despite a slower-than-expected volume numbers September. Chris Mauro, head of U.S. municipal research strategy at RBC Capital Markets, said in a conference call the firm is still expecting $365 billion, although that figure is at the top end of the range.

“We started the year predicting $240 billion and with the heavy volume of refundings, we upped the estimate to $365 billion,” Mauro said. “We are still at $365 billion but it’s probably at the top end of the range.”

He added there was roughly $250 billion that came during the first eight months of the year, leaving $115 billion gap in volume for the last four months of the year. Based on issuance in the last 4 months of the year in past years, Mauro said he is looking to see $24 billion issuance in September, $32 billion in October, $30 billion in November, and $28 billion in December. “We will probably be a bit shy of that number in September and we are admittedly in the top end of the range.”

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