The tax-exempt market was firmer Wednesday, although the rally lagged that of the Treasury market as news from Europe pushed Treasury yields to new record lows.

The lag in the muni market pushed ratios higher, causing some participants to lighten up as municipal bonds continue to look relatively cheaper compared to their taxable counterparts.

“Munis are just lagging,” a Chicago trader said. “We are in a new range and no one wants to accept lower rates. Buyers are upset about it. And at this point it takes a little time when you get into these new ranges for people to accept it, and then you see performance.”

He added that munis have been underperforming for the past three to four weeks, and the rally in the Treasury market Wednesday is making that worse. “So some people are even selling,” the trader said. “You have to be patient. If you panic you won’t make any money. But it’s a typical lagging environment and it’s not pretty.”

On the new-issue side, deals are being priced in two days due to the holiday-shortened week and so many are coming in on the wider side, he said, referring to the triple-A rated Texas Permanent School Fund which has recently traded between 18 and 30 basis points off the Municipal Market Data scale. “Right now, its trading closer to 30 than it is to 18. Everything is widening right now.”

A New York trader also noticed some municipal participants selling Wednesday morning. “It’s kind of odd but munis are not really rallying all that much,” he said. “In fact some people are cutting.”

He added traders aren’t necessarily cleaning out their books by selling, but that “munis are just not strong.”

Munis ended Wednesday’s trading session stronger, according to the MMD scale. Yields between five and nine years fell one and two basis points. Outside 10 years, yields dropped three and four basis points.

The 10-year yield fell three basis points to 1.80% while the 30-year yield dropped four basis points to 3.10%. The two-year yield also closed steady at 0.33% for the sixth consecutive trading session.

One trader tweeted that despite MMD bumping the scale, there wasn’t much follow through. “MMD bumped four basis points on the longer end today, but there doesn’t seem to be much conviction out there.” He added, “The market is very new money inquiry-driven on the retail side.”

Treasuries were much firmer Wednesday. The benchmark 10-year yield fell 12 basis points, setting a new record low of 1.62%. The 30-year yield plummeted 13 basis points to 2.71%. The two-year yield dropped two basis points to 0.28%.

Muni-to-Treasury ratios continued to climb as munis underperformed Treasuries and became relatively cheaper. The 10-year muni yield to Treasury yield ratio rose to 111.1% on Wednesday from 105.8% on Tuesday. The 30-year ratio jumped to 114.4% from 110.6% the day before.

A big portion of the primary market was issued Wednesday as issuers crammed in new deals in a shortened-holiday week.

Jefferies & Co. priced for institutions $251.6 million of Massachusetts Water Pollution Abatement Trust state revolving fund bonds in two parts — $155.6 million of new money and $96 million of refunding bonds. The credit is rated triple-A from all three major rating agencies.

Yields on the first pricing of $155.6 million ranged from 0.35% with a 2% coupon in 2014 to 4.00% with a 4% coupon in 2042. Credits maturing in 2013 were offered via sealed bid. The bonds are callable at par in 2020. Yields were lowered as much as two basis points from retail pricing Tuesday.

Pricing on the $96 million portion was not available by press time.

Morgan Stanley priced $200 million of Indiana Finance Authority Midwestern disaster relief revenue bonds, rated Baa3 by Moody’s Investors Service and BBB-minus by Standard & Poor’s and Fitch Ratings.

The bonds yielded 4.95% with a 5% coupon in 2032 and 5.05% with a 5% coupon in 2039. The bonds are callable at par in 2022.

JPMorgan priced $140.3 million of Dormitory Authority of the State of New York Columbia University revenue bonds, rated triple-A.

Yields ranged from 1.07% with 3%, 4% and 5% coupons in a split 2018 maturity, to 1.92% with 3% and 5% coupons in a split 2022 maturity.

On the competitive calendar, Citi won the bid for $231.5 million of New York’s Triborough Bridge and Tunnel Authority refunding bonds, rated Aa3 by Moody’s and AA-minus by Standard & Poor’s.

Yields ranged from 0.70% with a 5% coupon in 2015 to 4.00% with a 4% coupon in 2042. Credits maturing between 2012 and 2014 were not formally re-offered. The bonds are callable at par in 2022.

In the secondary market, trades reported by the Municipal Securities Rulemaking Board showed firming.

A dealer bought from a customer Maryland Health and Higher Educational Facilities Authority 6s of 2022 at 0.24%, three basis points lower than where they traded Tuesday. Bonds from an interdealer trade of Illinois 5.1s of 2033 yielded 5.57%, two basis points lower than where they traded the day before.

Bonds from an interdealer trade of Pennsylvania 5s of 2022 yielded 2.09%, one basis point lower than where they traded Tuesday. Bonds from another interdealer trade of California 5s of 2042 yielded 4.08%, one basis point lower than where they traded the day before.

Other trades compiled by data provider Markit showed firming. Yields on Tennessee 5s of 2018 and New Jersey Transportation Trust Fund Authority 5.25s of 2019 fell one basis point each to 1.07% and 2.07%.

Yields on Phoenix 3.5s of 2034 and Alaska Housing Financing Corp. 3.125s of 2023 each dropped two basis points to 3.65% and 3.14%, respectively.

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