The tax-exempt market ended as much as five basis points stronger on Wednesday as Puerto Rico rallied and demand for primary issuance pushed the secondary market firmer. The Federal Reserve said it will continue to pump money into the economy by extending its $85 billion a month bond purchasing program.

Municipal bond traders said positive reception for the largest deals of the week pushed prices higher across the board. "The market feels firm," a New York trader said. "There is good secondary activity. The new issues pricing Tuesday seem to have helped. People are looking at the secondary now that that's out of the way."

Other traders said Puerto Rico traded stronger ahead of the Commonwealth's conference call Thursday discussing the "legal opinions" in connection with issuance of its sales tax bonds.

"Puerto Rico is not a 2013 issue," a San Francisco trader said. "So you've taken out that event risk on the short-term. Puerto Rico might hit the wall somewhere in the early spring when economic numbers come in, they start missing targets, and the threat of a downgrade becomes real."

Volatility in Puerto Rico, and the general bond market, has also fallen in recent weeks as most traders believe the Federal Reserve will delay tapering its $85 billion a month bond purchasing program until 2014. "The taper thing has taken away the interest rate risk. It's going to be pushed off by six months," this trader said. "So you've taken two big event risks out and there is a lot less volatility."

On Wednesday, the Federal Open Market Committee announced no changes to its asset purchases.

"Nothing in this latest statement suggests that the Fed is abandoning the taper path established back in June. But we think the decision will be delayed until next year," said Paul Edelstein, director of financial economics at IHS Global Insight.

"The major problem is the fallout on the economy from the fiscal showdown that occurred this month, and could occur again early next year," Edelstein said. "The Fed's short-term objective is to protect the economic recovery from Washington headwinds. If a longer-term budget agreement is passed in mid-December, the Fed might taper at the late-January meeting. But we discount the likelihood of this happening and expect the Fed to wait until after the early-February deadline for raising the debt ceiling. This means that the earliest the Fed will taper is at the March 2014 meeting."

In the muni market Wednesday, Siebert Brandford Shank & Co. priced for institutions $600 million of Connecticut special tax obligation debt for transportation infrastructure financing, following a retail order period Tuesday. The bonds are rated Aa3 by Moody's Investors Service and AA by both Standard & Poor's and Fitch Ratings. By Tuesday afternoon, retail had placed $155 million in orders.

In institutional pricing Wednesday morning, yields ranged from 0.56% with a 3% and 5% coupon in a split 2016 maturity to 4.25% priced at par and 4.11% with a 5% coupon in a split 2033 maturity. Bonds maturing in 2014 and 2015 were offered via sealed bid. The bonds are callable at par in 2023. Yields were lowered as much as four basis points from retail pricing on bonds maturing between 2016 and 2023. Yields were raised one basis point on bonds maturing in 2028 and 2032.

Goldman, Sachs & Co. priced for institutions $618.1 million of New York's Metropolitan Transportation Authority in two parts, rated A2 by Moody's and A by Standard & Poor's.

In institutional pricing Wednesday, yields on the first pricing of $500 million ranged from 0.45% with 3% and 5% coupons in a split 2015 maturity to 4.84% with a 5% coupon in 2043. Bonds maturing in 2014 were offered via sealed bid. The bonds are callable at par in 2023. Yields were lowered as much as seven basis points from retail pricing Tuesday.

Yields on the second pricing of $118.1 million ranged from 3.23% with a 5% coupon in 2023 to 3.90% with a 5% coupon in 2027. The bonds are callable at par in 2023. Retail investors placed $17 million in orders on Tuesday. Yields were lowered one basis point from retail pricing on bonds maturing in 2026 and 2027.

Vallejo, Calif., came to market with $18 million of water revenue refunding bonds in its first public financing since it emerged from bankruptcy in 2011. De La Rosa priced the bonds, rated A-plus by Standard & Poor's. Yields ranged from 4.32% with a 5.25% coupon in 2027 to 4.79% with a 5.25% coupon in 2031. The bonds are callable at par in 2023. Yields were lowered two basis points on bonds maturing in 2031 in repricing.

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

Yields on Omaha Public Power District 5s of 2027 slid three basis points to 3.35% and Ohio's Buckeye Tobacco Settlement Financing Authority 5.875s of 2047 fell two basis points to 7.78%.

Yields on University of California 5s of 2025 and San Jose, Calif., Airport 5.5s of 2018 fell two basis points each to 2.97% and 1.67%, respectively.

Yields on North Carolina Medical Care Community Health System 5s of 2026 and New York Liberty Development Corp. 5s of 2044 slid one basis point each to 3.82% and 4.87%, respectively.

On Wednesday, yields on the triple-A Municipal Market Data scale ended as much as four basis points stronger. The 30-year yield fell one basis point to 4.04%. The two-year and 10-year yields were steady at 0.34% and 2.44%, respectively.

Yields on the Municipal Market Advisors benchmark scale ended as much as five basis points firmer. The two-year yield slid five basis points to 0.48% and the 10-year yield fell three basis points to 2.59%. The 30-year was flat for the fourth session at 4.23%.

Treasuries were mostly weaker after the FOMC meeting announcement. The benchmark 10-year and 30-year yields rose two basis points each to 2.53% and 3.64%, respectively. The two-year yield fell one basis point to 0.31%.

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