The tax-exempt market was steady to stronger Friday morning after a substantial rally this week that pushed the 10-year yield down eight basis points and the 30-year yield down 16 basis points.

The Municipal Market Data scale was not updated by press time. But on Thursday, the 10-year muni yield fell three basis points to 1.74%, hovering seven basis points above its record low of 1.67% set Jan. 18. The 30-year yield plummeted six basis points to 2.96%, beating the previous record low of 3.02% set Wednesday. The two-year was steady at 0.32% for the 29th consecutive session.

Treasuries were slightly weaker Friday morning. The benchmark 10-year yield and the 30-year yield rose two basis points each to 1.51% and 2.59%, respectively. The two-year was steady at 0.27%.

Because muni yields have fallen more than Treasury yields this week, the muni-to-Treasury ratio fell as munis outperformed and became relatively more expensive.

The five-year ratio fell to 114.3% on Thursday from 121.9% last Friday. The 10-year ratio dropped to 116.8% from 117.4% at the end of last week. The 30-year ratio fell to 115.2% on Thursday from 117.3% last week.

The slope of the yield curve continues to flatten as investors move out further on the curve in search of yield. The one- to 30-year slope of the curve flattened to 276 basis points on Thursday from 292 basis points last Friday. The one- to 10-year slope of the curve flattened to 154 basis points from 162 basis points at the end of last week.

In economic news, the producer price index rose 0.1% in June while the core producer price index increased 0.2%. The June PPI was better than expected while the core prices came right in line with analyst expectations.

"Although overall PPI prices rose unexpectedly in June, this is still a fairly benign report on finished goods inflation," wrote economists at RDQ Economics. "Overall inflation has risen only modestly over the last year and although core finished goods prices have increased at a faster pace, declining pipeline prices suggest that underlying finished goods inflation will pull back in the months ahead. However, this easing in finished goods prices is largely a commodity price story and we do not believe that it will hold in the more medium term given the global stance of monetary policy."

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