The tax-exempt market strengthened Monday afternoon, continuing a 21-session streak of steady or stronger munis. While the market was stronger, following Treasuries, activity started to slow as fatigue of record-low yields started to set in.

"It's very quiet," a New York trader said. "People don't know what to do. It's very boring."

Munis were much stronger Monday afternoon, according to the Municipal Market Data scale. Yields inside two years were steady while the three- to five-year yields fell as much as two basis points. Outside six years, yields dropped between two and five basis points.

On Friday, the two-year closed at 0.31% for the fifth consecutive trading session. The 10-year yield finished at 1.70%, closing three basis points above its record low of 1.67% set Jan. 18. The 30-year yield finished at 2.86%, a record low. The previous record was 2.90% set Thursday.

Friday marked the 20th consecutive trading session where munis have traded steady or firmer. Since this most recent rally began on June 22, yields on the 10-year have fallen 16 basis points while the 30-year yield has plunged 30 basis points.

Treasuries continued to climb Monday on European woes. The benchmark 10-year yield dropped three basis points to 1.43% while the 30-year yield plunged four basis points to 2.51%. The two-year was steady at 0.22%.

The broader stock markets were all lower Monday afternoon. In afternoon trading, the Dow Jones Industrial Average was off 130.02 points, or 1.01%, to 12,692.55. The S&P 500 index was down 16.51 points, or 1.21%, to 1,346.15 while the Nasdaq had fallen 48.06 points, or 1.64%, to 2,877.24.

Fears coming out of Greece, Spain and Italy were heightened by Eurozone consumer confidence shrinking to a 35-month low in July. The index fell to negative 21.6 from negative 19.8 in June and negative 19.3 in May. This was the weakest level since August 2009.

"We suspect that the weakening in confidence was pretty widespread in July," wrote Howard Archer, chief European and UK economist at IHS Global Insight. "It may well have taken a particularly serious hit in Italy and Spain as both countries pledged further austerity measures to bolster their budget deficit reduction plans while the decisions taken at the late-June EU leaders summit failed to ease the two countries' sovereign debt problems. Consumer confidence may also have been hit in the core northern Eurozone countries by concern that the sovereign debt crisis is if anything intensifying."

In the primary market this week, $6.25 billion is expected, down slightly from last week's revised $7.91 billion. In the negotiated market, $4.71 billion is expected, down from last week's revised $5.42 billion. On the competitive calendar, $1.54 billion is expected to be auctioned, down from last week's revised $2.49 billion.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.