The municipal market capped off another light week of issuance with yields extending their rally.

Muni yields on Friday declined for a 13th consecutive day, reaching new 2011 lows across the curve, Municipal Market Data’s triple-A scale showed.

Short-term yields ended the day flat to one basis point lower. Intermediate and long-term maturities fell one to two basis points.

The benchmark 10-year muni yield firmed one basis point to 2.85% Friday, down 14 basis points for the week. It has plunged 42 basis points since April 11, when the 10-year yield was 3.27%. The benchmark yield has reached its lowest point since December 6, when it was 2.81%.

The two-year muni yield fell one basis point to 0.56%, a four-basis-point decline on the week. The 30-year yield dropped two basis points to 4.58%, leaving it 12 basis points lower for the week.

In addition, it appears as though issuance will continue to trickle in for at least another five days.

Volume totaling $3.46 billion should come to market this week, according to estimates by The Bond Buyer and Ipreo LLC, versus a revised $3.54 billion last week. A $600 million New Jersey Transportation Trust deal, a negotiated sale, stands as the largest issue slated to reach the market.

Issuance averaged $3 billion in the first quarter, well under the $8 billion floated weekly in 2010. Predictions for total issuance in 2011, now between $200 billion and $300 billion, continue to fall.

But one California trader said he had concerns about the market’s capacity to safely absorb any flood of new supply.

“Mutual funds have been the long-term buyer over the last few years,” he said. “As long as we continue to have outflows from mutual funds without a stabilization, if supply comes when that is happening, I would have some concerns about the long end of the curve.”

Trading in the secondary market Friday was sparse.

“The day ended quiet, but stable,” said a trader in New York. “There was light activity, obviously no primary. People are really starting to understand that we’re not going to have any volume for a while.”

Investors and dealers wanted to gauge how the market would look this week before considering whether to add to positions, Randy Smolik wrote in his daily commentary for MMD.

“Treasuries were buoyant but on modest trading that was directed by month-end buying extension,” he wrote. “This buying will not continue into next week and the Street will be focused on adjusting positions ahead of April payrolls.”

Treasury yields changed little on Friday. The two-year yield fell two basis points to 0.61%.

The 10-year yield firmed two basis points to 3.29% and the 30-year yield slipped one basis point to 4.40%.

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