The tax-exempt market continued to weaken Wednesday afternoon though traders noted market activity started to slow.

And despite the Federal Open Market Committee announcing plans to expand its QE3 program to include $40 billion a month of mortgage-backed securities and $45 billion a month of long-term Treasuries, yields rose across the curve.

"People are now anticipating inflation to set in, which is why yields are rising," a New York trader said, adding that muni yields are rising but at a lag.

"Munis are pretty quiet today," he said. "There was a fair amount of new issues and munis are off anywhere from two to four basis points depending on where on the curve you're looking."

He added the weakening is driven primarily by too much supply. "This week has seen heavy supply and I think guys spent a lot of money last week on deals but it hasn't been paid for, so there were a fair amount of bid lists out at the beginning of the week to pay for purchases over the past few weeks. Munis were just overbought."

In the primary market Wednesday, Jefferies & Co. priced for retail $904.3 million of New York's Triborough Bridge and Tunnel Authority bonds. Institutional pricing is expected Thursday.

The $638 million of subordinate revenue bonds are rated A1 by Moody's Investors Service and A-plus by Standard & Poor's and Fitch Ratings.

The $266.3 million of general revenue bonds are rated Aa3 by Moody's and AA-minus by Standard & Poor's and Fitch. Pricing details were not available by press time.

In the competitive market, triple-A rated Georgia auctioned $292 million of general obligation bonds in two pricings.

Bank of America Merrill Lynch won the bid for $234.9 million of general obligation bonds. Yields ranged from 0.19% with a 3% coupon in 2014 to 3.01% with a 3% coupon in 2033. The bonds are callable at par in 2023.

JPMorgan won the bid for $57.1 million of federally taxable general obligation refunding bonds. Yields ranged from 0.47% with a 4% coupon in 2015 to 1.03% with a 3% coupon in 2018. Spreads ranged from 15 basis points to 40 basis points above the comparable Treasury yields.

On Tuesday, the Municipal Market Data scale ended as much as eight basis points weaker. The 10-year yield jumped eight basis points to 1.58% and now hovers 11 basis points above its record low of 1.47% set Nov. 28.

The 30-year MMD yield spiked up five basis points to 2.55%, trading eight basis points above its record low of 2.47% set Nov. 28.

The two-year finished flat at 0.30% for the 52nd consecutive trading session.

Treasuries continued to weaken Wednesday after a selloff Tuesday. The benchmark 10-year yield jumped four basis points to 1.69% while the 30-year yield spiked up six basis points to 2.89%. The two-year was steady at 0.25%.

In economic news, the Federal Open Market Committee announced plans to continue its third round of quantitative easing into 2013. The FOMC said it plans to continue buying $40 billion a month of mortgage-backed securities while making outright Treasury purchases of $45 billion a month to coincide with the end of Operation Twist.

The FOMC also ended its calendar date of "mid-2015" for the timing of the increase in the initial funds rate and instead said it "expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens."

The FOMC said it plans to keep the funds rate between zero and 0.25% "at least as long as the unemployment rate remains above 6% to 6.5%."

"In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments," the FOMC statement said.

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