The rally in the tax-exempt market started to slow a bit from the morning's big gains, though traders said the market was still stronger. Traders said bond prices are also being supported by recent poor economic news, and the possibility the Federal Reserve will taper less than what was originally thought.

"Munis are still rallying. It's slowed down a little since this morning but it's still rallying," a New York trading said. "Munis have a mind of their own. I'm getting decent enough bids that it's up."

A light new-issue calendar this week was also supportive of a firmer muni market. What little deals there are this week are expected to price ahead of the Federal Open Market Committee meeting announcement Wednesday. On Monday, JPMorgan priced for retail $130 million of Colorado Springs, Colo., Utilities System improvement revenue bonds, rated Aa2 by Moody's Investors Service and AA by Standard & Poor's and Fitch Ratings. Institutional pricing is expected Tuesday.

Yields on the first series of $59.8 million ranged from 0.64% with a 3% coupon in 2015 to 4.63% with a 4.625% coupon in 2033. Bonds maturing in 2014 were offered via sealed bid. Portions of bonds maturing between 2025 and 2043 were not offered for retail. The bonds are callable at par in 2023.

Yields on the second series of $70.2 million ranged from 0.64% with a 3% coupon in 2015 to 3.50% with a 5% coupon in 2024. Bonds maturing in 2014 were offered via sealed bid. Bonds maturing between 2025 and 2043 were not offered for retail. The bonds are callable at par in 2023.

On Friday, yields on the triple-A Municipal Market Data scale ended as much as five basis points firmer. The 10-year yield slipped four basis points to 2.83% and the 30-year yield dropped two basis points to 4.39%. The two-year was steady at 0.43% for the 42nd straight session.

Yields on the Municipal Market Advisors scale also ended as much as five basis points lower. The 10-year yield dropped four basis points to 3.00% and the 30-year yield dropped three basis points to 4.49%. The two-year closed unchanged at 0.55% for the 21st session.

Treasuries strengthened Monday afternoon, though pared most of morning's gains. The two-year yield slid four basis points to 0.40% and the benchmark 10-year yield fell three basis points to 2.86%. In a reversal, the 30-year yield rose two basis points to 3.86%.

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