The tax-exempt market traded steady Friday afternoon after a huge rally throughout the week that has yields trading at their record lows.

A Los Angeles trader said the market has been higher for weeks, driven mainly by the fact that tax rates are going to go up. “It’s been a strong couple of weeks,” he said. “It’s going back to the election and the expectation that there are going to be higher rates.”

With higher tax rates already approved by the voters in California, California general obligation bonds have seen support over recent weeks as investors look for a haven from those looming higher taxes. “There is definitely a positive feeling for California GOs which has driven that market higher and the rest of the country too. There is so much money flowing into municipal bond funds.”

He added going forward, supply is expected to decrease as the end of the year approaches and what little selling pressure there is will be reduced further. “A lot of the institutions will start shutting down in the middle of December so looking forward you see very little reason to think prices are going down.”

In the primary next week, the municipal market can expect $8.36 billion in municipal bonds, up from this week’s revised $6.74 billion. In the negotiated market, $6.77 billion is expected next week, up from this week’s revised $4.83 billion. In competitive deals, $1.59 billion is expected next week, up from this week’s revised $1.19 billion.

The Municipal Market Data scale ended steady to slightly higher Thursday. The 10-year yield finished flat at 1.47%, its record low set Wednesday. The 30-year yield also finished steady at 2.47% at its record low. The two-year finished steady at 0.30% for the 44th consecutive trading session.

The Treasury yield curve steepened Friday afternoon as yields on the short end fell while yields on the long end rose. The two-year yield fell two basis points to 0.25% while the 30-year yield jumped two basis points to 2.81%. The benchmark 10-year yield was flat at 1.62%.

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