The municipal market was unchanged Wednesday amid light secondary trading activity as 2010 nears its end.

"It's still fairly spotty with everyone out, but it seems like we're just flat," a trader in Los Angeles said. "There isn't a lot of activity to begin with, and I'm not seeing a pull in either direction."

"There are some bits and pieces trading, but it's pretty clear we're winding down at this point," a trader in New York said.

"There's some economic data out tomorrow morning, but after that, I'm not expecting much of anything to happen the rest of the week," the trader said. "Not that we've seen much of anything happen this week, anyway."

The Municipal Market Data triple-A 10-year scale was flat Wednesday at 3.16%, the 20-year scale was unchanged at 4.39%, and the scale for 30-year debt held at 4.68%.

Wednesday's triple-A muni scale in 10 years was at 94.3% of comparable Treasuries and 30-year munis were at 105.6%, according to MMD. Meanwhile, 30-year tax-exempt triple-A general obligation bonds were at 112.5% of the comparable London Interbank Offered Rate.

The Treasury market showed gains Wednesday after the Treasury Department auctioned $29 billion of seven-year notes in which indirect bidders, including foreign central banks, purchased 64.2% of the notes, the highest level since June 2009.

The Treasury auctioned the notes with a 2 3/4% coupon, a 2.830% high yield, and a price of 99.50. The bid-to-cover ratio was 2.86. The Federal Reserve banks bought $1,453,607,000 for their own account in exchange for maturing securities.

The benchmark 10-year note was quoted near the end of the session at 3.33% after opening at 3.48%. The 30-year bond finished at 4.41% after opening at 4.53%. The two-year note was quoted near the end of the session at 0.63% after opening at 0.75%.

In the daily MMD commentary, Randy Smolik wrote that "despite Treasuries reversing losses of yesterday, muni traders were still bidding comfortable levels for large block customer bid-lists."

"The market remains thin and bidding does not have a lot of depth," he wrote. "Bidders do not sense a need to reach. They may still have to carry inventory over the New Year before customer interest perks up."

Trades reported by the Municipal Securities Rulemaking Board Wednesday showed little movement.

A dealer sold to a customer North Carolina Medical Care Commission 5s of 2042 at 5.30%, even with where they were sold Tuesday. Bonds from an interdealer trade of California 5s of 2027 yielded 5.40%, even with where they were sold Tuesday. Bonds from an interdealer trade of Puerto Rico Electric Power Authority 5.25s of 2040 yielded 5.74%, even with where they were sold Tuesday.

A dealer sold to a customer taxable New York City Transitional Finance Authority Build America Bond 5.808s of 2030 at 6.00%, even with where they were sold Tuesday. A dealer sold to a customer taxable New York Metropolitan Transportation Authority BAB 6.814s of 2040 yielded 6.45%, even with where they were sold Tuesday.

Activity in the new-issue market was light Wednesday, as it has been all week. The light slate of new issuance follows a $3.4 billion menu last week, according to The Bond Buyer and Ipreo data. Eight billion dollars is about typical.

The light supply marks a respite for municipal participants, who were buffeted by several turbulent weeks in November and December.

An inundation of new supply coupled with a sell-off in Treasuries has led to a return of negative 4.6% for municipals so far in the fourth quarter, according to a Standard & Poor's index tracking the sector.

Municipalities have sold $130.39 billion of debt so far in the final three months of 2010, according to Thomson Reuters — the second-heaviest quarterly issuance in muni bond history.

Heavier issuance was recorded in the second quarter of 2008, when municipalities refunded out of failed auction-rate securities and sold variable-rate demand obligations in droves.

Thursday is the final day of trading in the current quarter, which has been marked by some mammoth weeks of issuance. Municipalities floated $14.7 billion of bonds during the week ended Nov. 19 — the second-highest total in at least five years, according to Bloomberg LP.

The fourth quarter also saw weeks with issuance of $13.2 billion, $12.1 billion, and $11.5 billion.

Most market watchers expect light issuance to continue into the beginning of 2011, as it is typical for municipal issuers to ease back on debt sales early in the year.

Municipal bond sales in the first quarter have averaged $52.7 billion since the early 1980s, according to Thomson Reuters. That compares with an average of about $67 billion for second quarters, $57 billion for third quarters, and $68 billion for fourth quarters.

However, record municipal bond mutual fund redemptions have emerged as a threat to the rally most market participants expected to kick off early next year, as the anticipated slowdown in the supply of new bonds is met with a wave of selling by mutual funds.

During the week ended Dec. 22, investors yanked $2.9 billion from their municipal bond mutual funds, according to Lipper FMI. Investors have withdrawn $15.2 billion from municipal funds over the past six weeks — the biggest loss of cash over any six-week period in history.

In the MMD commentary, Smolik wrote: "Muni dealers may still remain guarded on how muni bond funds will react in the New Year. With Lipper reporting $2.9 billion in outflows the week ending Dec. 22, funds may need to raise more cash and could be waiting for the street to be populated with players before selling."

The economic calendar was light Wednesday ahead of several pieces of data scheduled for Thursday.

On tap are initial jobless claims for the week ended Dec. 25 and continuing jobless claims for the week ended Dec. 18, plus the Chicago purchasing managers index for December and pending home sales for November.

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