The municipal market was flat to slightly weaker Friday, despite gains in the Treasury market. Traders said tax-exempt yields were unchanged to higher by two or three basis points.

"The screens aren't showing us off by that much, but it's weak out there," a trader in New Jersey said. "There's just not much out there on the bid side."

"It's pretty quiet, there have been a couple of cheaper trades, but after a week like we've had, I think most people are content to get out alive and moving," a trader in Chicago added. "There's still some selling pressure, and the markets off a couple basis points, but nothing too substantial."

The Treasury market showed some losses Friday after posting gains earlier in the session. The yield on the benchmark 10-year Treasury note, which opened at 4.22%, finished at 4.26%. The yield on the two-year note was quoted near the end of the session at 3.05% after opening at 3.04%.

"It was a fairly quiet day, surprisingly not a whole lot going on," a trader in Los Angeles said. "Treasuries were volatile [Friday], but we're not seeing a lot of action here in munis, and if you ask me why, I couldn't tell you. It's not really summer yet. Lots of blocks out for the bid and a couple things were able to trade up, but generally speaking, a pretty flat, quiet day."

"Next week will be bigger and more important," he continued. "We'll see what pressure high Treasuries and a lot of supply will do to the market."

In economic data released Friday, the consumer price index rose 0.6% in May, after a 0.2% increase the previous month. Economists polled by IFR Markets had predicted a 0.5% climb.

The core CPI rose 0.2% in May, after a 0.1% uptick the previous month. Economists polled by IFR had predicted a 0.2% increase.

Although the CPI showed an increase, it was less than people feared, especially given Federal Reserve chairman Ben Bernanke's recent warnings about inflation, said Ian Lyngen, interest rate strategist at RBS Greenwich Capital. And with five-year inflation expectations remaining at their May level of 3.4%, the market instead focused on the Michigan consumer confidence rating, which fell to 56.7, a 28-year low.

"[The CPI reading] gave a little confirmation things weren't falling off a cliff just yet," Lyngen said. "I'll stop short of saying this marks a pivotal turning point. However, I will note that in 2007, June 13 marked the start of a [Treasury market] rally into the summer."

The University of Michigan's preliminary June consumer sentiment index reading was 56.7 compared to 59.8 in May. Economists polled by IFR had predicted a 59.8 reading for the index.

This week, a slate of economic data will be released. Tomorrow, the May producer price index will be released, along with the May PPI core, May housing starts, May building permits, industrial production for May, and capacity utilization for May. On Thursday initial jobless claims for the week ended June 14 will be released, along with continuing jobless claims for the week ended June 7, and the composite index of leading economic indicators for May.

Economists polled by IFR Markets are predicting a 1.0% rise in PPI, a 0.2% uptick in the PPI core, 985,000 housing starts, 960,000 building permits, a 0.1% increase in industrial production, 79.7% capacity utilization, 375,000 initial jobless claims, 3.150 million continuing jobless claims, and no change to the LEI.

Activity in the new-issue market was light Friday.

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