NEW YORK – At the end of a week marked by strong demand and a firm tone in the municipal market, tax-exempt traders expect the story to remain the same in the near future. Supply is expected to drop off in the next few weeks and coupon payments will add cash to a market that already has plenty of cash to put to work.

“We are very firm for the week,” a Chicago trader said. “There were two huge buyers – a high-grade buyer in the 10-year range and a state GO clean buyer in the 15-year range. They put a billion to work mostly in the primary and some in the secondary.”

He added that those buyers “gobbled up everything that was out there so the market is really firm and that calmed supply fears.”

Not only are there buyers and demand for muni bonds, but visible supply has dropped. “So things are very firm,” the trader said.

The market is also anticipating $25 billion of coupon payments coming due May 1 and June 1. “So you have $50 billion in cash coming on top of everyone already having cash on their books,” he said.

Munis were steady to weaker Friday afternoon, according to the Municipal Market Data scale. Yields inside nine years were steady while the 10- to 14-year yield rose up to one basis point. Yields outside 15 years were flat.

On Thursday, the two-year yield closed steady at 0.31%. The 10-year yield dropped four basis points to 1.88% while the 30-year yield dropped two basis points to 3.28%.

Treasuries were slightly weaker. The benchmark 10-year and the 30-year yield each rose two basis points to 1.98% and 3.14%. The two-year was steady at 0.27%.

This week, muni-to-Treasury ratios have fallen as munis outperformed Treasuries and became relatively more expensive. The five-year muni yield to Treasury yield fell to 100% from 102.4% last Friday. The 10-year ratio fell to 96.4% from 99% at the end of last week. The 30-year ratio rose slightly to 105.5% from 105.4%.

The slope of the yield curve has fallen to 308 basis points from 312 basis points last Friday as investors move further out on the yield curve. But the 10- to 30-year slope of the curve rose to 140 basis points from 135 basis points last Friday – hinting investors bought muni in the 10-year spot faster than they bought 30-year munis.

Looking to next week, the municipal market can expect $5.17 billion, off from this week’s revised $7.97 billion. In the negotiated market, $3.54 billion is expected to be priced, down from this week’s revised $5.59 billion. On the competitive calendar, $1.63 billion is expected to be issued, down from this week’s revised $2.38 billion.

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