The tax-exempt market continued to take direction from the primary market as deals were priced aggressively and higher demand with light new issuance kept bond prices higher.

"It's a very competitive market with light supply this week and today is a big day," an Atlanta trader said. "There is not that much to digest but with the strength of the market Monday, it feels better. There is a lot of momentum off these new deals."

This trader said the market felt two basis points firmer, much less than the nearly 10 basis-point drop in yields Monday.

"There is good secondary activity and a lot of bonds are disappearing. People are light with inventory and trying to replace it so that's helping drive the market," he said.

The largest deals of the week priced in the competitive market Tuesday, with the largest of the day, nearly $500 million for New York's Empire State Development Corp., pricing richer than Monday's Municipal Market Data scale on the short-term. Bonds were priced cheaper than the scale on longer-maturing bonds.

Bank of America Merrill Lynch won the bid for $478.2 million of Empire State Development Corp. state personal income tax revenue bonds, rated AAA by Standard & Poor's and AA by Fitch Ratings.

Yields ranged from 0.30% with a 5% coupon in 2015 to 3.40% with a 5% coupon in 2025. The bonds are callable at par in 2023. Bonds with 5% coupons maturing in 2015 and 2016 were priced 13 and eight basis points richer than Monday's MMD scale. Bonds maturing in 2017 and 2018 were priced right on the scale. Bonds with 5% coupons maturing between 2019 and 2025 had spreads ranging from 13 basis points to 32 basis points cheaper than the MMD scale.

Also in the competitive market, Ohio auctioned $400 million of common schools general obligation bonds in three pricings, rated Aa1 by Moody's Investors Service and AA-plus by Standard & Poor's and Fitch.

Bank of America Merrill won the bid for $183.3 million. Yields ranged from 3.14% with a 5% coupon in 2024 to 4.50% priced at par in 2033. The bonds are callable at par in 2021.

Citi won the bid for $116.7 million. Yields ranged from 0.18% with a 1% coupon in 2014 to 2.87% with a 5% coupon in 2023.

JPMorgan won the bid for $100 million of taxable bonds. The bonds were priced at par to yield 0.28% in 2014 to 3.69% in 2023. Spreads ranged from five basis points to 83 basis points above the comparable Treasury yield.

JPMorgan won the bid for $331.7 million of Virginia College Building Authority educational facilities revenue bonds, rated Aa1 by Moody's and AA-plus by Standard & Poor's and Fitch.

Yields ranged from 0.36% with a 4% coupon in 2015 to 4.55% with a 4.5% coupon in 2034. The bonds are callable at par in 2023.

In the negotiated market, the largest deals also priced. Bank of America Merrill Lynch held preliminary pricing for $287.3 million of Washington federal highway grant anticipation revenue bonds, rated Aa3 by Moody's and AA by Standard & Poor's.

Yields ranged from 0.58% with a 5% coupon in 2015 to 3.60% with a 4% and 5% coupon in a split 2024 maturity. The bonds are callable at par in 2023.

Ramirez & Co. held preliminary pricing for $253.8 million of Dallas-Fort Worth International Airport joint revenue refunding bonds, rated A2 by Moody's, A-plus by Standard & Poor's, and A by Fitch.

Yields ranged from 1.21% with a 3% coupon in 2016 to 4.94% with a 5.25% coupon in 2033. Bonds maturing in 2014 and 2015 were offered via sealed bid. The bonds are callable at par in 2023.

On Monday, yields on the triple-A Municipal Market Data scale ended as much as 10 basis points firmer. The 10-year yield slipped nine basis points to 2.74% and the 30-year yield dropped six basis points to 4.33%. The two-year was steady at 0.43% for the 43rd straight session.

Yields on the Municipal Market Advisors scale also ended as much as 10 basis points lower. The 10-year yield dropped nine basis points to 2.91% and the 30-year yield dropped seven basis points to 4.42%. The two-year closed unchanged at 0.55% for the 22nd session.

Treasuries continued to gain Tuesday afternoon for the fifth consecutive session. The benchmark 10-year and 30-year yields slid three basis points each to 2.85% and 3.84%, respectively. The two-year yield fell one basis point to 0.39%.

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