The tax-exempt market continued to post gains Friday morning as traders said activity was strong.

"It's been pretty strong now for five days and it's not slowing down at all," a Chicago trader said. "It's stronger with good activity."

He added that it's not a blowout rally, but the market is two to three basis points stronger. "Everything is going in our favor."

Municipal bond market scales finished flat across the curve Thursday after posting gains throughout the week.

Yields on the Municipal Market Data triple-A GO scale ended steady. The 10-year yield and the 30-year yield finished flat at 1.81% and 2.91%, respectively, for the second session. The two-year closed at 0.31% for the eighth straight session.

Yields on the Municipal Market Advisors 5% coupon triple-A benchmark scale also closed steady. The 10-year and the 30-year yield ended the day flat at 1.83% and 2.99%, respectively. The two-year was steady at 0.33% for the third session.

Treasuries were stronger Friday morning. The benchmark 10-year yield and the 30-year yield dropped two basis points each to 1.87% and 3.07%, respectively. The two-year was steady at 0.25%.

In economic news, personal income fell $505.5 billion, or 3.6%, in January while personal spending climbed $18.2 billion, or 0.2%. Personal income fell more than the 2.1% expected by economists but spending came in as expected.

"The month-to-month income changes are unrelated to underlying economic trends and represent perfectly rational behavior on the part of private-sector economic agents to time income realizations to beat the expected tax hikes related to the fiscal cliff," wrote economists at RDQ Economics. "In addition, when it comes to real disposable income, the income and payroll tax hikes on January 1 raised the average tax rate on households to the highest since December 2008."

They continued, "The good news is that despite this volatility, private wage and salary income is up 3.4% on a year-over-year basis despite lower than usual bonus payments in January since some of these payments were accelerated into December. It will take a couple of months for changes in income and the level of the savings rate to become clear of these distortions."

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.