The tax-exempt market ended slightly weaker Monday, though traders said yields began to stabilize by afternoon trading.

A majority of the weaker trades happened Monday morning as Treasuries opened significantly weaker. By afternoon, traders said the market was in a “hurry up and wait” mode.

“The morning looked like it had the potential to deteriorate because the 10-year Treasury yield was right at 2.00%, but it subsided and got leveled off,” a Chicago trader said. “Now we’re off a few basis points but only from inactivity. Not from anything else.”

He added that the market is waiting for big news later in the week, including the Federal Open Market Committee meeting minutes and unemployment numbers. “We’ve got some things that could really make a difference as vulnerable as we are right now. The market is on the cusp. A little news either way or a little more weight on either side could hurt or help.”

Indeed traders in the morning said trading was weaker but acknowledged by the market was not in full selloff mode.

“We are not seeing any selling pressure in the market,” a New York trader said. “We are relatively constructive on the market with a lack of supply this week and the decent technicals in the short-term.”

He added munis are a tad weaker, but are most likely following Treasuries. “We don’t view it as being a result of any selling pressure. We have sold more bonds than we’ve bought this morning but that’s based on a couple trades.”

This week, the municipal bond market can expect $6.41 billion in new issuance, down from last week’s revised $7.22 billion. The negotiated market can expect $4.59 billion, down slightly from last week’s revised $4.76 billion. On the competitive calendar, $1.82 billion should be auctioned, down from last week’s revised $2.46 billion.

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

Yields on New Jersey Transportation Trust Fund Authority 5.5s of 2041 and Arizona State Transportation Board 4s of 2028 jumped four basis points each to 3.25% and 2.73%, respectively.

Yields on California 5s of 2041 also increased four basis points to 3.30% while Connecticut State Special Tax Obligation 5s of 2022 increased three basis points to 1.90%.

Yields on Indiana Finance Authority 4s of 2035 and Puerto Rico Electric Power Authority 5s of 2042 rose two basis points each to 3.78% and 5.13%, respectively.

Most reads on the municipal bond market showed softening Monday after a weaker Friday.

The Municipal Market Data scale ended lower. The 10-year yield jumped four basis points to 1.79% while the 30-year yield increased three basis points to 2.82%. The two-year yield rose one basis point to 0.34% after trading steady at 0.33% for seven consecutive trading sessions.

The Municipal Market Advisors 5% coupon triple-A benchmark scale also showed weakening. The 10-year yield rose four basis points to 1.81% while the 30-year yield jumped three basis points to 2.91%. The two-year yield increased one basis point to 0.35% after trading steady at 0.34% for nine consecutive trading sessions.

Treasuries traded weaker Monday afternoon. The benchmark 10-year yield and the 30-year yield jumped two basis points each to 1.98% and 3.16%, respectively. The two-year yield rose one basis point to 0.29%.

Over the past week, muni-to-Treasury ratios have fallen as munis outperformed Treasuries and became relatively more expensive.

The five-year muni yield to Treasury yield ratio fell to 86.4% on Monday from 96% last Tuesday. The 10-year ratio dropped to 90.4% from 91.3% last week while the 30-year ratio fell to 89.2% on Monday from 90.1% last Tuesday.

In similar bond news, the muni market is keeping its eyes on the FOMC meeting announcement and the jobs report Wednesday, though most market participants expect no new action from the Fed.

Guy LeBas, chief fixed income strategist at Janney Capital Markets, said he expects no changes to existing bond buying programs though he will watch for any change in language regarding the termination of the asset purchases announced in December.

“We’re expecting no change in current policies or new programs given that at the December 2012 meeting the Fed launched a new quantitative easing program and the central bank usually likes to give its policies some time to simmer before adding another item to the pot,” LeBas wrote. “Moreover, Operation Twist — the bank’s maturity extension program — concluded at year-end. Compared to the other scheduled meetings, this one is perhaps the least important for the year.”

In terms of a change in wording, market participants are looking for any hint on when the Fed will slow its quantitative easing programs.

“Fed watchers this time around will be looking for any signs in the FOMC statement that suggest when the committee will begin to remove the quantitative easing punchbowl,” LeBas noted. “In the December meeting minutes, members expressed views on when the ongoing asset purchases would likely need to end.”

The Fed is currently buying $40 billion a month in mortgage-backed securities along with $45 billion a month in longer-term Treasuries.

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