Muni market yields surged to an eighth straight day of firming to finish the week. The abbreviated session capped a holiday-shortened week that saw little new supply.

"There were a few bid lists earlier this morning, but that was pretty much it," said a trader in Los Angeles.

The morning started off with activity in a couple of high-grade Texas Build America Bonds trading, according to a New York trader.

"The BABs continue to tighten to aggressive levels," he said. "It'll be interesting to see if people look to pull some bonds out and book some profits with the spreads continuing to tighten on the high-grade, index-eligible BABs."

A Wells Fargo index of long-term BABs showed the average yield fell 23 basis points from April 11 to 5.98% on April 20. During the same period, the 30-year Treasury yield declined only 17 basis points.

Tax-exempt yields ended the day lower, according to Municipal Market Data's triple-A scale. Short-term yields ended two basis points lower. Intermediate yields finished down one to three basis points, while later maturities firmed one or two basis points.

The enduring rally has so far pushed the benchmark 10-year muni yield to 2.99%, its lowest since March 22. That represents a 28-basis point drop from 3.27% on April 11, though the rally is still retracing earlier losses — its yield was as low as 2.90% on March 16.

The 10-year yield now sits 19 basis points below its first-quarter average of 3.18%, but it hasn't in any way bottomed out for the year. From Feb. 25 through March 22, it never rose above 3%.

The two-year muni yield held at 0.60% for the third consecutive day. The 30-year yield ended the day two basis points lower at 4.70%, a six basis point drop for the week.

The municipal market continued to ignore Treasuries, which were mixed Thursday. The two-year Treasury yield ended at 0.67%, one basis point lower on the day but up two basis points for the week.

The 10-year yield fell one basis point to 3.40% Thursday but rose three points for the week, while the 30-year yield climbed two basis points to 4.48%, finishing the week two points higher.

Low supply continued to leave its mark on muni prices.

"Near nonexistent supply helped push yields down," Janney Capital Markets' Alan Schankel wrote in a research note. "Next week's calendar offers little improvement with the only issue of size being $1 billion Chicago O'Hare Airport ... an oft-postponed deal."

The Bond Buyer expects just $3.05 billion will come to market this week, up from $2.06 billion last week and in line with the $3 billion average in the first quarter, but still well below the $8 billion floated weekly in 2010.

"Supply and demand are still really light," the Los Angeles trader said. "I don't see anything on the calendar of major size looking forward. But if that does start to come in and demand doesn't pick up with it, it should make for an interesting market."

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