Strong demand for municipal bonds buoyed prices throughout the week.

The primary market led the way, as a surge in supply on the week — an expected $8.64 billion, against $4.04 billion last week — met a cash-heavy investor base. After a slow holiday Monday launched the week, deals on Tuesday and Wednesday arrived in some cases with lower yields, were upsized, and priced ahead of schedule or were many times oversubscribed.

Traders have also seen active buying in the secondary. Despite munis’ hot hand, yields ran neck-and-neck with those of Treasuries on the week since Friday.

Muni bond indexes mostly fell, reflecting the lower rates.

The Bond Buyer’s revenue bond index, which measures 30-year revenue bond yields, declined five basis points this week to an all-time low of 4.37%. The previous record low was 4.38% on March 15, 2007. The Bond Buyer began calculating the revenue index on Sept. 20, 1979.

The 20-bond index of 20-year general obligation yields declined seven basis points this week to 3.72%. That is the lowest level for the index since Aug. 30, when it was also 3.72%.

The yield on the U.S. Treasury’s 10-year note increased four basis points this week to 1.78%. That is its highest level since May 24, when it was also 1.78%.

The yield on the Treasury’s 30-year bond rose one basis point this week to 2.96%, which is its highest level since Aug. 16, when it was also 2.96%.

The market eagerly devoured the boost in supply, according to Phil Villaluz, managing director and head of municipal strategy at Sterne Agee. The rally in Treasuries helped, as well.

“We’ve seen a snap-back in munis after the weakness that we saw following the Fed announcement of QE3 over a week ago,” he said. “The competitive deals also saw aggressive bids coming from dealers stepping up to the deals that came this week.”

Since Friday, triple-A tax-exempt yields have fallen from the intermediate part of the curve on out, Municipal Market Data numbers show. The benchmark 10-year yield plunged 12 basis points over the period to 1.81%.

The 30-year muni yield dropped 11 basis points to 2.95%. The two year held at 0.29% for the 40th consecutive session.

Concerns about supply being discussed just as recently as a few weeks ago aren’t coming to fruition, Villaluz added. The late-summer market lull that persisted beyond the Labor Day holiday failed to dampen investor appetite for tax-exempts, as demonstrated by consistent inflows to muni bond mutual funds.

“Just from the performance that we’ve seen this week, seeing that boost in supply, the deals are still getting done,” Villaluz said. “They’re clearing the market comfortably.”

The 11-bond index of higher-grade 20-year GO yields also dropped seven basis points this week to 3.51%, which is its lowest level since Aug. 30, when it was also 3.51%.

The Bond Buyer’s one-year note index, which is based on one-year GO note yields, fell two basis points this week to 0.22%, which is its lowest level since Aug. 8, when it was also 0.22%.

The weekly average yield to maturity of The Bond Buyer municipal bond index, which is based on 40 long-term bond prices, increased two basis points this week to 4.26% for the week ending today. That is the highest weekly average for the yield to maturity since the week ended Aug. 23, when it was also 4.26%.

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