The tax-exempt market headed lower, following Treasuries and equities, over fears the Federal Reserve will soon start tapering its $85 billion a month bond purchases after better-than-expected economic news released Thursday morning.

Municipal bonds felt as much as four basis points weaker, a New York trader said, though bonds within five years felt stronger. "There are lots of bids wanted out there," the trader said. "But munis are also following Treasuries."

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