The tax-exempt market held steady at Thursday's levels as traders said the market started to stall ahead of the three-day weekend.

"I would say munis are holding flat," a New Jersey trader said. "Muni yields are not backing up with Treasuries and with ratios nearing the lows it doesn't make a lot of sense."

Overall this week new deals did extremely well and there are no balances left on accounts. But the secondary has been frustrating for traders. "Secondary activity is stalled and it seems like a frustrated Friday market. There are no adjustments being made for offerings."

On Thursday, the 10-year Municipal Market Data yield closed steady at 1.67% while the 30-year yield finished flat at 2.84% for the third session. The two-year closed flat for the eighth session at 0.30%.

Since munis began their steady to firmer streak on Sept. 17, the 10-year yield has plummeted 26 basis points from when it traded at 1.93%. The 30-year yield has plunged 22 basis points from when it traded at 3.06%.

The 10-year now hovers only seven basis points above its record low of 1.60% set July 26. The 30-year trades only five basis points above is record low of 2.79% hit July 25.

Treasuries were weaker Friday afternoon after reports the unemployment rate fell below 8% for the first time since January 2009. The benchmark 10-year yield jumped four basis points to 1.72% while the 30-year yield spiked up six basis points to 2.95%. The two-year yield increased one basis point to 0.26%.

With record low yields, high-yield municipal bond funds have continued to soar. J.R. Rieger, vice president of fixed income at Standard & Poor's Dow Jones Indices noted the S&P Municipal High Yield Index has returned over 14.4% year-to-date as yields have come down 116 basis points throughout the year.

Conversely, the S&P National AMT-Free Municipal Bond Index returned 6.38% year-to-date.

"The spread between investment-grade and high-yield municipal bonds has moved wider by about seven basis points from its tightest point, however, to 322 basis points, or a change of 84 basis points since year end," he noted.

High-yield sectors have outperformed the market as well. The S&P Municipal Bond Tobacco Index has returned 17.18% year to date, followed by the S&P Municipal Bond Land Backed Index which has returned 10.41%. The S&P Municipal Bond Health Care Index has returned 9.72%.

State specific indices that are outperforming the general market include Ohio which has returned 8.22% year to date, Illinois which has returned 8.15%, and Colorado which has returned 8.14%. California has returned 7.89% and New Jersey has returned 7.71% year to date.

Looking to next week's primary market, $8.26 billion is expected to come to market, up from this week's revised $7.53 billion. In the negotiated market, $6.80 billion is expected to be priced, up from this week's revised $6.19 billion. On the competitive calendar, $1.46 billion should be auctioned, up from this week's revised $1.34 billion.

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