The tax-exempt market passed its first test of 2013 as issuance started to pick up in the primary market and ample demand met it.

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After several weeks of almost no issuance, the market saw over $3 billion in supply, stemming from $1.68 billion in the negotiated calendar and $1.36 billion in the competitive market.

Traders said the market did show signs of improvement this week and made gains. “The market is beginning to recover from the December sell-off as January coupons and cash flow returns,” said Tom Metzold, co-director of municipal investments at Eaton Vance.

But there is still a cautious tone in the market as traders wait for uncertainty to be resolved in Washington. “A return to the November highs is contingent on the resolution of the potential taxation of municipals as part of deficit reduction negotiations.”

In the primary market, Jefferies & Co. priced for retail and institutions $903.7 million of Metropolitan Transportation Authority Triborough Bridge and Tunnel Authority refunding bonds, and yields were bumped two to seven basis points.

Higher-yielding credits fared better. The $80 million Tift County, Ga., Hospital Authority deal for the Tift Regional Medical Center was 10 times oversubscribed, according to one market participant.

“The new deals that are being priced this week have had good support,” wrote Dan Toboja, vice president at Ziegler Capital Markets.

With an increase in supply in the primary market, secondary activity jumped as well.

Indeed, Metzold said while the primary market was active this week, most of the attention was focused on the secondary.

According to the Municipal Securities Rulemaking Board, there were more trades on Tuesday, Wednesday, and Thursday than their respective 30-day averages.

On Tuesday, there were 44,029 trades, up from the 30-day average of 42,782. In par amount, $11.266 billion was traded, down just slightly from the 30-day average of $11.376 billion.

On Wednesday, 43,567 trades occurred, coming in above the 30-day average of 42,887. Par amount traded was $12.799 billion, up from the 30-day average of $11.514 billion.

On Thursday, there were 42,815 trades compared to the 30-day average of 42,735 trades. Par amount traded of $13.245 billion also beat the 30-day average of $11.525 billion.

The week was slow to start, however, as Monday saw 40,649 trades compared to the 30-day average of 41,562. Par amount traded came in a $8.226 billion, below its 30-day average of $11.119 billion.

In retail trades for under 100 bonds — or $100,000 par value — secondary activity was the highest this week since the week of Dec. 19, according to BondDesk Group.

There were 68,433 buy trades for the week ending Jan. 9, up from the previous week’s 39,657 buy trades. There were 31,132 sell trades this week compared to 20,504 sell trades for the week ending Jan. 2.

This week clocked in the highest number of buy trades and sell trades since the week ending Dec. 19 when there were 79,010 buy trades and 42,433 sell trades.

Still, there were over double the buy trades than there were to sell trades this week as the ratio of buy to sell trades jumped to 2.2%. It was the highest ratio in the past five weeks.

In terms of par amount traded, there were $1.918 billion in buy trades compared to last week’s $1.070 billion buy trades. It was the highest since the week ending Dec. 19 when there were $2.210 billion buy trades.

There was also an uptick in sell trades this week with $915 million trades compared to last week’s $592 million sell trades. It was the highest amount of sell trades since $1.303 billion for the week ending Dec. 19.

There was double the amount of buy trades than there were to sell trades as the ratio ticked up to 2.1%, higher than the previous five weeks.

Overall for the week, the Municipal Market Data scale ended higher with yields falling across the curve. The 10-year MMD yield closed 10 basis points lower to 1.70% versus last Friday’s 1.80%. The 30-year MMD yield finished down nine basis points to 2.80% versus last Friday’s 2.89%.

The two-year yield fell two basis points for the week to 0.34%.

For the week, Treasury yields ended lower, though the rally was more muted than the municipal bond rally. The benchmark 10-year Treasury yield fell one basis point for the week to 1.91% while the 30-year yield closed down two basis points for the week to finish at 3.09%. The two-year Treasury yield also fell two basis points throughout the week to 0.26%.

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