Primary bond market

"The market has taken to heart the [Federal Open Market Committee] actions from last week," said Jeff Lipton, managing director of credit research at Oppenheimer Inc.

Yields have "risen substantially over the last week as the market seeks to find at least a minor level of balance or equilibrium," said Tom Kozlik, managing director and head of public policy and municipal strategy at HilltopSecurities.

Data for the second quarter show the face amount of munis outstanding rose 0.4% quarter-over-quarter, or $15.5 billion, to $4.043 trillion.

The district plans an aggressive capital program in the next few years to meet rising demand and transition away from coal-fired plants.

"People are just kind of sitting on their hands and being careful because MMD is raising yields every day and people don't know which way this is heading," said John Farawell of Roosevelt & Cross.

The Texas Water Development Board leads the new-issue calendar with $1 billion of revenue bonds.

The general bias toward muni rates is that they would be a bit higher with technicals "being a little less supportive than they were in August, plus what we heard with from the Fed 'higher for longer,' and potentially another hike," said Jeff MacDonald, head of Fixed Income Strategies at Fiduciary Trust International.

As was expected, the FOMC held rates in a range between 5.25% and 5.50%, but the dot plot in the Summary of Economic Projections showed 12 of 19 members expect another 25-basis-point rate hike this year.

Fund flows "should be moving along a more positive trajectory, but they have yet to do so with munis unable to break free of the Treasury market's tight grip," Oppenheimer's Jeff Lipton said.

With a light new-issue calendar ahead of the FOMC meeting, "secondary flows may benefit from greater attention," said Kim Olsan, senior vice president at FHN Financial.