The tax-exempt market showed major signs of slowing Friday morning as most traders were off the desk ahead of the three-day holiday weekend.

One New York trader focused on institutional size trades in the secondary market said it was quiet. "There is nothing going on. It's dead."

Thursday, yields on the triple-A Municipal Market Data scale ended flat to one basis point higher. The 10-year was steady at 2.94% the 30-year was unchanged at 4.45%. The two-year finished flat at 0.43% for the 32nd straight session.

Yields on the Municipal Market Advisors scale ended mostly flat across the curve. The 10-year was steady at 3.08% for the third session and the 30-year closed steady at 4.54% for the second session. The two-year closed unchanged at 0.55% for the 11th session.

Treasuries were slightly weaker Friday morning. The benchmark 10-year yield increased two basis points to 2.77% and the 30-year yield rose one basis point to 3.71%. The two-year was steady at 0.40%.

In economic news, personal income rose $14.1 billion, or 0.1%, in July following an unrevised 0.3% increase in June. The July figure was weaker than the 0.2% increase expected by economists. Spending in July rose $16.3 billion, or 0.1%, after a revised 0.6% increase in June.

"Consumer spending has expanded at a fairly sluggish rate over the last three months as real disposable income growth has been very subdued and the savings rate has held steady at around 4.5%," wrote economists at RDQ Economics. "The sluggishness in spending growth, however, is entirely due to spending on services, which has contracted at a 1.0% annualized rate since April, while spending on goods has been spritely."

"From a Jim Bullard inflation perspective, PCE price inflation has risen from 0.7% in April to 1.4% with a high-frequency three-month inflation rate running at 2.4%," the economists wrote. "With inflation much closer to the Fed's 2% target than it was earlier in the year, another bridge to a September taper announcement has been crossed, in our judgment."

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