The municipal bond market firmed in nearly every session this week, pushing the 10-year Municipal Market Data yield to its lowest in over four months, on light supply and slowing outflows from municipal bond funds.

The 10-year yield fell to 2.44% during the week, its lowest since June 19. The 30-year MMD yield dropped to 4.04%, its lowest since July 18.

With just over $5 billion in new issue supply and light dealer inventory, demand appeared strong.

Connecticut issued $600 million of special tax obligation bonds and received about $155 million in retail orders by the afternoon of the pricing. Yields were lowered as much as 4 bps from retail pricing on bonds maturing within 10 years. New York’s Metropolitan Transportation Authority came with just over $600 million and yields were lowered as much as 7 bps from retail pricing.

Redemptions from municipal bonds slowed to just $503 million in the week ending Oct. 30, according to funds that report weekly to Lipper FMI. Outflows slowed from the previous week’s $746 million.

For the month of October, Oppenheimer Funds had the most outflows that report to Lipper, netting $734 million in outflows for the month. Legg Mason saw the second highest outflows for the month with $253 million. Wells Fargo had the third largest outflows for the month with $237 million followed by Lord Abbett & Co. with $184 million. JPMorgan rounded out the top five with $180 million outflows for the month.

“Overall the light volume made the market earlier in the week appear stronger than it really was,” a Chicago trader said. “Without supply to test it, dealers made up the majority of trading.”

Puerto Rico made more headlines this week with the Government Development Bank holding a conference call discussing legal opinions in connection with issuance of the sales tax revenue bonds by the Puerto Rico Sales Tax Financing Corp.

External counsel involved in the COFINA series 2011C and senior series 2011D issuance told investors their opinion was that COFINA bonds were not subject to claw-backs by general obligation bond holders. Legal counsel said Act 91 transfers pledged sales tax to COFINA and that pledged tax is not available for use by the commonwealth’s Treasury.

In the secondary market this week, trading activity fell in retail size trades, according to BondDesk Group, which tracks trades of under 100 bonds.

Customer buy trades fell to 70,602 from the previous week’s 77,817. Customer sell trades also dipped to 33,427 from the previous week’s 35,500 trades. The ratio of buy to sell trades fell to 2.1 from 2.2.

In par value traded, buy trades slipped to $1.853 billion from the previous week’s $1.996 billion. Customer sell trades also slid to $933 million from the past week’s $966 million. The buy to sell ratio of par value traded slid to 2.0 from 2.1.

The 20-Bond GO Index of 20-year general obligation yields declined eight basis points this week, to 4.48%. The index is at its lowest level since July 3, when it was 4.39%.

The 11-Bond GO Index of higher-grade 20-year GO yields dropped five basis points this week, to 4.20%, which is its lowest level since July 3, when it was 4.16%.

The Bond Buyer’s Revenue Bond Index, which measures 30-year revenue bond yields, fell two basis points this week, to 5.14%. This is the lowest the index has been since Aug. 8, when it was 5.05%.

The yield on the U.S. Treasury’s 10-year note rose three basis points this week, to 2.54%, but remained below its 2.59% level from two weeks ago.

The yield on the Treasury’s 30-year bond increased two basis points this week, to 3.63%, but remained below its 3.66% level from two weeks ago.

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