The tax-exempt market continued to strengthen as the theme of demand outweighing supply took hold of the market once again.

Traders said this dynamic is not expected to change in the near future. “We are stronger and I think we are going to get stronger,” a Chicago trader said. “There is not much coming in supply and all of a sudden if you want bonds, you have to pay the price and push it up a bit.”

He added there is not a large amount of reinvestment money coming due, but there will be a small amount, creating an even bigger divide between the supply and demand imbalance.

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 continued to gain Thursday, erasing Wednesday’s losses. The benchmark 10-year yield and the 30-year yield dropped four basis points each to 1.62% and 2.73%, respectively. The two-year yield fell one basis point to 0.27%.

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