The tax-exempt market ended the week on a stronger note after a massive selloff throughout most of December as the risk-off trade once again prevailed.

Munis were firmer during the latter portion of the week, though yields still remain significantly higher from their record lows. And as the weekend approached, trading activity started to slow as market participants left for the holidays.

"It's extremely quiet today," a Virginia trader said. "Especially as the day goes by it's getting slower and slower. The muni market is basically taking cues from Treasuries at this point."

He added the market feels slightly firmer, following Treasuries, for the second consecutive session.

Others agreed liquidity was slowly returning to the market. "Bids for some bonds have returned to the market, but we are far from touching the yields we saw at the start of last week," said Dan Toboja, vice president at Ziegler Capital Markets. "30-year triple-A yields from Monday of last week have backed up 30-plus basis points and bids for some bonds have pulled back further. There continues to be plenty of bid-wanteds to choose from. Both institutional customers and dealers are putting large numbers of bonds out for the bid, but may only transact on a select few."

In the secondary market Friday, trades compiled by data provider Markit showed a mix of strengthening and weakening.

Yields on Lubbock, Texas, 5s of 2020 jumped four basis points to 1.15% while Turlock, Calif., Public Financing Authority 4.75s of 2032 rose one basis point to 3.75%.

Yields on Massachusetts Development Finance Agency 5s of 2029 and New Jersey Transportation Trust Fund Authority 4s of 2031 rose two basis points each to 3.83% and 3.26%, respectively.

Other trades were stronger. Yields on Dallas, Texas, 5s of 2017 dropped three basis points to 0.90%. Yields on Shelby County, Tenn., 5s of 2021 and Puerto Rico Sales Tax Financing Corp. 6.05s of 2029 fell two basis points each to 1.70% and 3.43%, respectively.

On Friday, the Municipal Market Data scale ended firmer for the second session. The 10-year yield fell two basis points to 1.77% while the 30-year yield dropped one basis point to 2.83%. The two-year finished flat at 0.31% for the fourth consecutive trading session.

Despite the small gains, the 10-year MMD yield is still up 11 basis points for the week and remains 30 basis points above its record low of 1.47% set Nov. 28. The 30-year is still trading 12 basis points higher for the week and is 36 basis points above its record low of 2.47% also set Nov. 28.

Treasuries were stronger Friday for the third consecutive session. The benchmark 10-year yield fell three basis points to 1.77% while the 30-year yield plummeted five basis points to 2.93%. The two-year fell one basis point to 0.27%.

Data from the Municipal Securities Rulemaking Board also showed that as each day progressed, activity increased. On Monday, 47,443 trades occurred, above the 30-day average of 41,018. But par amount traded was only $11.024 billion, down from the 30-day average of $12.227 billion.

Tuesday's numbers improved. There were 56,147 trades on Tuesday, a big jump from the 41,702 30-day average. And par amount traded was up to $13.805 billion from the 30-day average of $12.404 billion.

Trading was in full swing by Wednesday as 56,239 trades took place, up from the 30-day average of 42,295. In par amount traded, $16.629 billion occurred, up from the 30-day average of $12.582 billion.

On Thursday, 51,785 trades occurred, up significantly from the 30-day average of 42,711 trades. Par value traded was also up to $15.650 billion, well above the $12.579 billion 30-day average.

As Christmas approaches, many traders were quick to say it's not going to be a happy one for munis.

"Month-to-date, and really it is over the last eight business days, munis have sold off in dramatic fashion," said James Colby, senior municipal strategist at Van Eck Global's Market Vectors ETFs. "The Barclays Municipal Bond Index is down 1.66% and even the High Yield Index is down 1.08%."

He added, "Yes, Santa is still coming to muniland, in the form of reinvestment of coupon, calls and maturities to the jingling of more than $20 billion for December. And once the snow globe settles for investors and advisors, I believe they will see the same high credit quality marketplace at yield levels not seen for many, many weeks. If investors loved the muni market a month ago at the rate of $1 billion in new cash, then the relative value proposition is now all the more compelling."

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