The municipal bond market posted its biggest one-week rally since June as the 10-year yield fell 22 basis points on prospects of continued economic stimulus from the Federal Reserve.

Video-Muni Week in Review: September 20, 2013

The drop in the Municipal Market Data 10-year yield was the largest since the week of June 24 when the yield fell 24 basis points. In that week, worse-than-expected GDP numbers pushed investors into safe-haven assets.

The biggest event of this week – the Federal Open Market Committee decision to maintain  its $85 billion-a-month bond purchasing program, rather than begin tapering it – pushed municipal bond yields down seven to 10 basis points Wednesday afternoon on the benchmark scales. On Thursday, yields fell another seven to eight basis points.

While the FOMC stole most of the attention, munis also rallied as much as 10 basis points earlier in the week after Larry Summers — considered the front-runner to replace Bernanke — withdrew his name from consideration. Janet Yellen, with views more in line with Bernanke's in favor of accommodative monetary policy, emerged as the new front-runner and munis rallied.

"Another day of strength Thursday continued the rally that started prior to the Fed announcement but gained steam after Bernanke's comments," said Dan Toboja, vice president at Ziegler Capital Markets. "Participants had raised enough cash over the last several weeks to put some money to work selectively to take advantage of what could be lower interest rates for the near term."

And while the market saw its 17th consecutive week of outflows, with an additional $1.1 billion this week, buyers in individual bonds continue to push the market firmer.

"New issues will be the key to the market temperature going forward," Toboja said. "In the selloff new issues were the sole pocket of buy-side attention as customers raised cash by selling secondary to choose through primary paper. Broadly, while certain names may appear to be oversold there seems little likelihood of us returning to the era of 2.50% 30-year triple-A munis."

For the week through Thursday, the 10-year Municipal Market Data yield fell 22 basis points to 2.61% and the 30-year yield dropped 16 basis points to 4.23%. The two-year yield fell five basis points for the week to 0.38%.

The 10-year Municipal Market Advisors yield fell 23 basis points for the week through Thursday to 2.77% and the 30-year yield fell 18 basis points to 4.31%. The two-year slid one basis point for the week to 0.54%.

Secondary activity was slightly lower this week, according to Interactive Data, in anticipation of the Fed's big announcement Wednesday.

On Monday, there were 10,232 customer sell trades of $2.375 billion, up from last week's 10,117 of $2.383 billion. Customer buy trades fell to 19,687 of $2.518 billion in par value from the previous Monday's 20,830 buy trades of $2.364 billion.

Interdealer trades rose to 15,352 with a par value of $2.694 billion from last Monday's 15,413 worth $1.944 billion. Total trades slipped, though par value rose. For all trades on Monday, there were 45,271 worth $7.588 billion, down from the previous Monday's 46,360, but up in par value from $6.691 billion traded.

On Tuesday, activity slipped. There were 10,753 customer sell trades of $2.405 billion, down from the previous Tuesday's 11,028 worth $2.611 billion. Customer buy trades fell to 21,823 with a par value of $3.232 billion from last Tuesday's 23,552 of $3.438 billion.

Interdealer trading increased to 17,095 of $2.646 billion from the previous Tuesday's 17,060 of $2.417 billion. Including all trading activity, par value slipped to $8.283 billion in 49,671 trades from $8.466 billion in 51,640 trades.

On Wednesday, there were $2.961 billion in 10,653 customer sell trades, down from the previous Wednesday's $2.976 billion in $11,194 trades. Customer buy trades rose in par value to $4.841 billion from the previous Wednesday's $4.614 billion but slipped in trading activity to 23,785 from 26,260.

Interdealer trading volume rose to $3.521 billion from $3.354 billion. Trading activity fell for interdealer trades to 16,566 from 17,662. For all trades, par value rose to $11.323 billion from $10.944 billion. The number of trades slipped to 51,004 from 55,116.

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