After a flurry of activity in the morning with Fed Chairman Ben Bernanke’s speech at Jackson Hole, Wyo., the muni market continued to follow Treasuries higher, although activity had notably slowed.

“We are understaffed today so we are actually keeping busy,” one trader tweeted. We are cleaning some off the books. It’s a good day for selling.”

He added trades can get done with a “little work at decent levels.”

Other traders said the market closed earlier in the afternoon. “I haven’t heard the phone ring all morning,” he said.

The strength in the market helped keep Illinois credits from weakening after Standard & Poor’s downgraded its debt to A from A-plus earlier in the week. Bonds issued by the state and from municipalities within the state have so far not had a big reaction, according to JR Rieger, vice president of fixed income indexes at Standard & Poor’s Dow Jones Indices.

“Bonds issued by the state and municipalities within the state have so far held their own and have performed in line with the overall market,” he said.

Outside Illinois debt, the rest of the market has performed well year-to-date. Rieger noted high-yield bonds continue to outperform, with the S&P Municipal Bond High Yield Index returning 13.1% year to date compared to the S&P National AMT-Free Municipal Bond Index which returned 5.54%.

Municipals outperformed the S&P/BGCantor U.S. Treasury Seven to 10 Year Index which returned 3.75% and the S&P/BGCantor U.S. Treasury Bond 20-plus Year Index which returned 5.23% year to date.

On Thursday, the 10-year Municipal Market Data yield and the 30-year yield fell one basis point each to 1.74% and 2.89%, respectively. The two-year closed at 0.29% for the 26th consecutive session.

Treasuries continued to rally after Bernanke’s speech. The benchmark 10-year yield and the 30-year yield dropped four basis points each to 1.59% and 2.71%, respectively. The two-year yield fell two basis points to 0.25%.

Looking to next week’s primary market, $1.89 billion in municipal bonds are expected to be issued, down slightly from this week’s revised $2.18 billion. On the negotiated calendar, $1.38 billion is expected to be priced, down from this week’s revised $1.84 billion. In competitive deals, $506.7 million is expected to be auctioned, up from this week’s revised $339.9 million.

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