The tax-exempt market finished on a busier tone than it started as the Federal Open Market Committee’s announcement on Quantitative Easing 3 spurred activity.

While the tone of the muni market was steady at the beginning of the week, bonds plummeted Thursday after the announcement of QE3 and continued to weaken Friday.

“Munis are weaker but the selloff isn’t as big as Treasuries,” a New York trader said. “I think it’s pretty much directed from Treasuries backing up dramatically as well as the building of the muni new issue calendar which is putting an extra twist in it.”

Even with yields rising, this trader said volume is taking to the sidelines as traders wait for prices to settle in. “We had a nice move Thursday and the move is even bigger today,” he said. “So people are hesitant to come in and waiting longer to see if they can come in cheaper.” The trader added it’s Friday so volume is also slowing down as traders break for the weekend.

Next week’s activity should pick up the trader added. “People in the muni world are sitting tight to see where things settle in and what preliminary pricing guidance for the deals will be.”

Munis were fluttering with activity in the morning, playing catch-up to the selloff in Treasuries. “The muni market is down pretty good,” a second New York trader said, adding there is increased trading volume.

On Friday, the 10-year Municipal Market Data yield jumped nine basis points to 1.93% while the 30-year yield soared eight basis points to 3.06%. The two-year closed at 0.29% for the 36th consecutive session.

The 10-year MMD yield is now the highest since April 17, when it yielded 1.95%. The 30-year yield is the highest since July 10 when it touched 3.06%.

Treasuries continued to fall Friday after a huge fall Thursday, pushing yields higher. The benchmark 10-year yield jumped 13 basis points to 1.87% while the 30-year yield soared 14 basis points to 3.09%. The two-year increased one basis point to 0.26%.

Since QE3 was announced, the two-year yield has jumped three basis points, the benchmark 10-year yield has soared 15 basis points and the 30-year yield has spiked up 20 basis points.

In the secondary market, trades compiled by data provider Markit showed weakening. Yields on Fort Worth, Texas, 5s of 2022 jumped six basis points to 2.15% while New Jersey Turnpike Authority 7.102s of 2041 increased three basis points to 4.43%.

Yields on San Jose, Calif., airport 6.6s of 2041 and Phoenix, Ariz. 5s of 2018 rose two basis points each to 5.44% and 1.06%, respectively.

And while the immediate response to QE3 has been lower bond prices, some economists expect bond prices not to fall too much in the long term. Paul Edelstein, director of financial economics at IHS Global Insight, said the Fed’s forward guidance of keeping interest rates low till mid-2015 should keep pressure on long-term interest rates as well. “The Fed’s forward guidance should at least put some downward pressure on long-term interest rates,” he said. “The Fed’s MBS purchases could drive mortgage rates lower, or at least narrow their spreads to US long-term Treasuries. Otherwise, the Fed’s latest move is dollar-negative and gold- and commodity-price positive.”

In the primary next week, the municipal market can expect $8.64 billion in bonds, up from this week’s revised $4.04 billion. On the negotiated calendar, $7.64 billion is expected to come to market, up from this week’s revised $2.7 billion. On the competitive side, $998.7 million is expected, up from this week’s revised $1.34 billion.

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