NEW YORK – Traders say the municipal bond market is completely unaffected by Standard & Poor’s revising its outlook on U.S. Treasury debt to negative from stable.

“I don’t see much a muni response at all,” said a trader in California. “We haven’t been following Treasuries so it’s really a non-event.”

An early read showed short- and intermediate-term munis yields falling one to three basis points, while maturities beyond 2029 were flat to one basis point lower, according to Municipal Market Data.

“I wouldn’t say it’s a rally of huge proportions, but it says something that there’s a rally at all” the trader said. “A lot of it has to do with the lack of paper out there.”

Total new volume in this holiday-shortened week is expected at $1.43 billion, versus $2.48 billion last week. Volume in the first-quarter averaged roughly $3 billion per week, versus an average $8 billion in 2010.

Monday features no significant deals.

Munis have now been rallying for five consecutive days. The 10-year tax-exempt yield fell 12 basis points to 3.15% last week, reversing a four-week trend of rising yields. The two-year yield ended at 0.63% and the 30-year muni finished at 4.78%.

“We were bleeding slowly for two months and now we’re kind of ratcheting up a bit,” the trader said.

Cash flowed out of Treasuries when the Standard & Poor’s news hit the wires, but the market quickly stabilized as investors fled from equities. The 10-year Treasury yield was recently down five basis points from Friday's close, at 3.36%.

The Dow Jones Industrial Average shed 212 points, or 1.72% as of 1:30 Eastern Time. The S&P 500 index was 20 points lower, a loss of 1.59%.

The muni market received confirmation over the weekend that the $1.3 billion offering from Liberty Development Corp. was pulled last week because of a “volatile rate environment.”

“We made the decision to delay the Tower 4 Liberty Bond sale due to market considerations,” said a joint-statement from Silverstein Properties and the Port Authority of New York & New Jersey. “We plan to move forward with the Liberty Bond financing once the municipal markets have settled down and we have addressed investor issues.”

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