The tax-exempt market was trading steady to firmer Monday afternoon as traders noted that stronger trades were getting done, but cautioned that the market was not soaring.

"Mondays seem to start out this way and in the last few weeks people are taking summer vacations," a Chicago trader said. "But on Aug. 15 we are moving towards the second leg of the Texas redemption money and it should be evenly dispersed. Right now the market has a finite set of opportunities. It is order driven or a situation like this that occurs with the Texas redemption money coming due."

He added that this week, supply is still manageable, but the market is fighting poor attendance and these absolute yield levels.

"We are off record lows for sure but I think you still have the issue of the stock market versus munis for an income perspective with dividend paying stocks," he added. "You have an expectation coming for higher rates in the future but right now what do you do?"

Generally speaking, the Chicago trader said there is demand for certain yield structures but dealers aren't building inventory around flows. "And I don't think dealers are especially heavy."

Monday afternoon, he said trades are getting done in the range where the market could be considered firm. "I wouldn't say there are any run away trades right now. But our market is being pushed up. But if you have bonds in the street and you are forcing someone to put up capital, they are going to force you to lower prices."

On Friday, the 10-year Municipal Market Data yield fell one basis point to 1.76% while the 30-year yield dropped two basis points to 2.92%. The two-year finished steady at 0.29% for the 12th consecutive session.

Treasuries were stronger Monday afternoon. The benchmark 10-year yield dropped two basis points to 1.64% while the 30-year yield fell three basis points to 2.72%. The two-year was steady at 0.27%.

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