The tax-exempt market saw extremely strong reception in the primary market this week and that strength continued into the secondary market Friday as follow-through trading showed more gains.

“It’s a little busy,” a New York trader said.

“Fund flows were again strongly positive this week,” said Dan Toboja, vice president at Ziegler Capital Markets. “Any concerns about the fiscal cliff and partisan gridlock are unable to slow retail investors surging toward munis.”

He added deals were very well received in the primary. “The new issues this week were well oversubscribed with some deals 10 times oversubscribed and deals being bumped 20 basis points in some cases and still able to be comfortably done.”

In the secondary, he added lower rated healthcare deals are seeing strong reception in the secondary. “Healthcare deals especially have seen some follow through with trades occurring at up levels regularly.”

Looking to next week, Toboja said all eyes are on an increase in supply. “Market players will have their eyes on the upcoming supply next week, but with inflows coming in without any pause there seems little chance the market backs up on a supply/ demand imbalance.”

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.

Treasuries were stronger Friday morning. The benchmark 10-year yield and the 30-year yield fell one basis point each to 1.61% and 2.78%, respectively. The two-year was steady at 0.27%.

In economic news, person income was almost unchanged in October while personal spending fell 0.2%.

The flat October personal income report failed to meet analyst expectations of a 0.3% increase. The drop in personal spending was also below economist expectations of a 0.1% increase.

“It is impossible to disentangle the underlying signal from any effects that Sandy may have had on the spending data but, regardless of the source of weakness in spending, the starting point for the fourth quarter for consumer spending is troubling for fourth-quarter GDP growth,” wrote economists at RDQ Economics. “Real PCE in October stands 0.2% below its third-quarter average (at an annual rate) and, combined with the upward revision to inventory investment in the third quarter, this suggests that growth in the fourth quarter will come in significantly below 2%.”

They added, “Weak fourth-quarter growth only reinforces our view that the economy cannot withstand going over the fiscal cliff without falling into recession.”

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