The tax-exempt market played catch up Friday morning, continuing to rally despite a slowdown in Treasuries.

Traders said even with municipal yields setting record lows Thursday, the buying spree was not likely to slow.

 "Munis continue to rally along with Treasuries," a Boston trader said. "There is simply too much money chasing too few bonds. We continue to see capitulation from individuals and institutions who are sitting with cash. There is still uncertainty with respect to tax reform but munis are the only game in town."

On Thursday, the Municipal Market Data scale posted gains and set record low yields. The 10-year yield dropped four basis points to 1.59%, setting a record low as recorded by MMD. The 1.59% broke the previous record low of 1.60% set July 26.

The 30-year MMD yield fell five basis points to 2.69%, breaking the previous record low of 2.74% set Wednesday. Wednesday's record broke the previous low of 2.79% set July 25. The two-year finished steady at 0.30% for the 31st consecutive trading session.

Treasuries were mostly steady Friday morning. The two-year and benchmark 10-year yields were flat at 0.26% and 1.62%, respectively. The 30-year yield rose one basis point to 2.77%.

In next week's primary market, $7.61 billion is expected, up from this week's expected $4.65 billion. The negotiated market can expect $6.63 million, up from this week's revised $3.69 billion. On the competitive calendar, the market can expect $985 million, up from this week's revised $965 million.

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