Buyers in the tax-exempt market continued to stay focused on the short-end of the curve, allowing issuers in the primary to demand higher prices for bonds maturing before 2020. On longer maturing bonds, issuers had to raise yields to entice buyers.

Wednesday morning, secondary trading also kept market participants busy with odd-lot trades of Wayne County, Mich., bonds. Late Tuesday afternoon, Fitch Ratings downgraded the county's general obligation bonds five notches to BB-minus, pushing them into junk status.

In odd-lot trading of one CUSIP of Wayne County Building Authority GO limited tax bonds, a customer sold to a dealer 10s of 2040 at 10.33%, 68 basis points higher than where the bonds were sold Tuesday. In another trade of the same CUSIP, a customer bought from a dealer the same bonds at the same yield as Tuesday.

Looking beyond Wayne County, a New York trader said the market felt one to two basis points weaker, extending losses from Tuesday. Still, this trader said buyers in the new issue market found bonds attractive on the front end of the curve.

Wednesday morning, JPMorgan issued a pre-marketing scale for $5.5 billion of California revenue anticipation notes, ahead of its retail order period expected later Wednesday. Institutional pricing is expected Thursday. The notes are rated MIG-1 by Moody's Investors Service, SP-1-plus by Standard & Poor's, and F1 by Fitch Ratings.

The first series of $2.5 billion had prospective yields ranging from 0.18% to 0.23% with a 2% coupon in 2014. The second series of $3 billion had prospective yields ranging from 0.20% to 0.27% with a 2% coupon in 2014.

Raymond James & Associates priced for institutions $386.5 million of Reedy Creek, Fla., Improvement District ad valorem tax bonds, rated Aa3 by Moody's, A-plus by Standard & Poor's, and AA-minus by Fitch.

Yields on the first series of $345.3 million ranged from 2.71% with a 5% coupon in 2020 to 5% priced at par in 2038. The bonds are callable at par in 2023. Yields were raised seven basis points on bonds maturing in 2026 and two basis points on bonds maturing in 2032 from retail pricing Tuesday.

Yields on the second series of $41.2 million of refunding bonds, ranged from 0.61% with a 3% coupon in 2015 to 3.81% with a 5% coupon in 2024. Bonds maturing in 2014 were offered via sealed bid. The bonds are callable at par in 2023. Yields were lowered between two and seven basis points on bonds maturing between 2015 and 2018 from retail pricing Tuesday. Yields were raised seven basis points on bonds maturing beyond 2020.

Morgan Stanley priced $150 million of Philadelphia water and wastewater revenue bonds, rated A1 by Moody's, A by Standard & Poor's, and A-plus by Fitch. Yields ranged from 1.33% with a 4% coupon in 2017 to 5.25% with a 5.125% coupon in 2043. Bonds maturing in 2043 are callable at par in 2022.

Tuesday, yields on the Municipal Market Data scale ended as much as seven basis points higher. The 10-year yield rose seven basis points to 2.79% and the 30-year yield increased five basis points to 4.33%. The two-year finished flat at 0.43% for the 20th consecutive session.

Yields on the Municipal Market Advisors scale also ended as much as seven basis points higher. The 10-year and 30-year yields rose six basis points each to 2.95% and 4.40%, respectively. The two-year yield was unchanged at 0.54% for the fifth session.

Treasuries were mostly steady Wednesday morning after losses Tuesday. The two-year and benchmark 10-year yield were flat at 0.34% and 2.72%, respectively. The 30-year yield increased one basis point to 3.76%.

In economic news, the July producer price index was flat while the core rate rose 0.1%, coming in lower than expected.

"A surprise drop in gasoline prices and a potential seasonal problem with vehicle prices may have resulted in a modest understatement of price pressures in July," wrote economists at RDQ Economics. "Nonetheless, there is little in this report to be concerned about from either an inflation or disinflation perspective. There is nothing here to change our forecast of a 0.2% increase in both core and headline CPI prices in July. More importantly, there is nothing here that we see derailing the Fed from going ahead with an announced reduction in the size of bond purchases in September."

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