NEW YORK – The tax-exempt market opened Wednesday on a strong tone, following a firm tone set by primary issuance Tuesday.

“Munis are stronger by a few basis points,” a New York trader said. “They have to keep up with Treasuries.

Indeed, munis were firmer Wednesday morning, after finishing steady to firmer Monday and Tuesday, according to the Municipal Market Data scale. Yields inside five years were steady while yields on the six- to 15-year fell between one and two basis points. Outside 16 years, yields dropped between one and three basis points.

On Tuesday, the two-year yield closed flat at 0.31% for the 10th consecutive trading session while the 30-year ended flat at 3.25% for the seventh consecutive trading session. The 10-year yield finished at 1.87% for the fifth time.

Treasuries were stronger in morning trading. The two-year yield fell one basis point to 0.27%. The benchmark 10-year yield dropped three basis points to 1.92% while the 30-year yield fell four basis points to 3.11%.

In the primary market Wednesday, Citi is expected to price for institutions $506.1 million of Louisiana gasoline and fuels tax revenue refunding bonds, rated Aa1 by Moody’s Investors Service and AA-minus by Standard & Poor’s and Fitch Ratings.

In retail pricing Tuesday, yields ranged from 0.46% with a 3% coupon in 2014 to 2.53% with 4% and 5% coupons in a split 2024 maturity. Credits maturing in 2013 were offered via sealed bid. Bonds maturing between 2025 and 2032 were not offered for retail. The bonds are callable at par in 2022.

Barclays Capital is expected to price $329 million of District of Columbia income tax-secured revenue refunding bonds. The debt is rated Aa1 by Moody’s, AAA by Standard & Poor’s and AA-plus by Fitch.

In the competitive market, Seattle, Wash., is expected to auction $126.6 million of general obligation bonds in two pricings – a $76.7 million deal and $49.9 million.

The strong tone in the primary market this week was set by the $1.8 billion Illinois general obligation deal, priced Tuesday by Jefferies & Co. Bankers on the deal said there were $5.3 billion orders placed by close to 100 investors.

“There was pretty broad demand across the curve but the book was heavily oversubscribed in 10-years and longer,” said Roy Carlberg, head of municipal syndicate at Jefferies, adding the biggest price improvements came outside the 2025 maturity. On the long end, yields were lower up to nine basis points in repricing.

Carlberg said the transaction was institutionally driven, but Jefferies did make the effort to add maturities that were more attractive to retail. “We carved out 2016, 2019 and 2025 specifically for retail, but at the end of the day the deal required institutional support.”

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