The record amount of Treasury debt issued last week will have a minimal short-term effect on municipal bond yields, as inflation and interest rates are expected to remain low at least through the end of the year, market participants said last week.

Muni yields would likely rise with Treasury yields if the government is forced to increase interest rates to attract buyers, they said. However, last week demand for the $235 billion of bills and notes auctioned remained adequate, especially from foreign buyers, according to sources. Meanwhile, demand for munis remains strong as individual investors buy high-grade credits and pour cash into tax-exempt mutual funds.

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