The tax-exempt market ended flat to slightly stronger Wednesday continuing a week-long trend of muni yields following Treasury yields lower.

Limited primary issuance this week led to much more demand than supply, further strengthening munis.

And while traders noted that the market was expected to slow down ahead of the Labor Day holiday, trades were still getting done — although it wasn’t necessarily enough to push the market much higher.

“It’s kind of sideways,” a New York trader said. “But there are buyers out there with some inquiries.”

Not all traders agreed. And a retail trader in New Jersey said the market was dead. “It’s very slow from my point of view,” he noted.

Other traders said the market looked stronger as demand continues to outweigh supply in this low-issuance week. And, that dynamic may continue into the fall months despite higher supply expected.

“It’s going to be a tough one heading into election time, potential QE III, and ECB action,” a second New York trader said. “I can’t imagine we’ll see a backup again until we erase the net negative supply number. The many layers of potential headline risk are too great right now to see consistent weakness set in.”

The trader added that because there is negative net supply, the search for yield continues. “It’s the same old story and more hunt for yield,” he said, adding a Pennsylvania Higher Education deal for the University of Sciences, rated A3 by Moody’s Investors Service and A-minus by Fitch Ratings, came in 13 times oversubscribed on the 2039 maturity and 10 times oversubscribed on the 2042 maturity. “We are talking a 10- to 15-basis-point bump.”

In the primary market Wednesday, Wells Fargo Securities priced $77.7 million of Florida Municipal Power Agency Stanton II project revenue bonds, rated A1 by Moody’s and A-plus by Fitch.

Yields ranged from 0.43% with a 2% coupon in 2013 to 3.12% with a 3% coupon in 2027. The bonds are callable at par in 2022.

Bank of America Merrill Lynch sold $59.1 million of Florida Municipal Power Agency St. Lucie project revenue bonds, rated A2 by Moody’s and A by Fitch. The bonds are priced to yield 2.99% with a 5% coupon in 2026 and are callable at par in 2022. Yields were lowered three basis points at repricing.

On the competitive calendar, the South Carolina Association of Government Organizations auctioned $105.4 million short-term taxable and tax-exempts in two series, as well as a series of long-term bonds. The credit is rated Aa1 by Moody’s.

B of A Merrill won the bid for the first series of $4.8 million of taxable certificates of participation, at a yield of 0.30% with a 0.375% coupon in 2013.

B of A Merrill also won the bid for the second series of $88.5 million of tax-exempt certificates of participation, at a yield of 0.10% with a 1.75% coupon in 2013.

Wells Fargo won the bid for $12.1 million of long-term tax-exempt certificates of participation. Yields ranged from 0.45% with a 4% coupon in 2014 to 1.14% with a 2% coupon in 2018. Credits maturing in 2013 were not formally re-offered.

In the secondary market, trades compiled by data provider Markit showed strengthening between one and four basis points. Yields Charles County, Md., 5s of 2020 dropped four basis points to 1.45% while Massachusetts 5s of 2025 fell three basis points to 2.04%.

Yields on Tennessee 5s of 2022 and Chicago O’Hare International Airport 5s of 2026 dropped three basis points each to 1.82% and 3.59%, respectively. Yields on Arizona’s Salt River Project Agricultural Importance and Power District 5s of 2031 dropped two basis points to 2.63% while California Statewide Communities Development Authority 5s of 2042 fell one basis point to 3.90%.

On Wednesday, the 10-year Municipal Market Data yield finished steady at 1.75% for the second session while the 30-year yield closed flat at 2.90% for the third consecutive trading session. The two-year closed at 0.29% for the 25th consecutive session.

While the muni market cheapened during the first few weeks of August, the strength in the market over the past six trading sessions has recouped almost all of those losses. Over the past week, the 10-year yield has plummeted 15 basis points while the 30-year yield has plunged 12 basis points, pushing yields down to levels last seen August 7.

The 10-year MMD yield now trades 15 basis points above its record low of 1.60% set July 26 and the 30-year yield hovers 11 basis points above the 2.79% record low set July 25.

Treasuries posted losses on Wednesday after stronger trading sessions Monday and Tuesday. The benchmark 10-year yield and the 30-year yield jumped two basis points each to 1.66% and 2.77%, respectively. The two-year was steady at 0.28%.

Treasuries were strengthened by positive economic news released Wednesday morning. Real gross domestic product increased at an annual rate of 1.7% in the second quarter. The increase is better than the 1.5% growth originally reported in the advance estimate last month, and came in at economist expectations.

But not economists were optimistic. “The economy was sluggish in the second quarter and the slight upward revision to GDP does nothing to change that picture,” wrote economists at RDQ Economics. “Slow nominal GDP growth will be used by some as an argument in favor of expanding the Fed’s balance sheet at the September FOMC meeting.”

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