Light supply and a perceived hesitation on the part of investors conspired to hold the municipal market to only modest outperformance against Treasuries.

Yields for both securities backed up on the week, as munis have been taking their cues from Treasuries and the calendar. Demand for tax-exempts continues to remain strong, market watchers indicate, though activity in the secondary during the week has been limited.

Throughout much of the week, market participants have waited for Thursday's Federal Open Market Committee meeting to provide direction for the economy. But some say the Fed committee's decision had already been priced into the market.

Muni bond indexes mostly rose on the week, reflecting the higher rates. The Bond Buyer's 20-bond index of 20-year general obligation yields increased six basis points this week to 3.79%, the highest level since Aug. 16, when it was 3.80%.

The 11-bond index of higher-grade 20-year GO yields also gained six basis points this week to 3.58%. That is its highest level since Aug. 16, when it hit 3.59%.

The yield on the U.S. Treasury's 10-year note increased six basis points this week to 1.74%. That is its highest level since Aug. 16, when it was 1.84%. The yield on the Treasury's 30-year bond jumped 15 basis points this week to 2.95%, which is its highest level since Aug. 16, when it was 2.96%.

That the FOMC elected to hold short-term interest rates at current levels through mid-2015 and initiated a course of mortgage-backed securities buying should have little effect on the muni market, according to Howard Mackey, president of the broker-dealer division of Rice Financial Products. But that didn't encourage much investor participation this week, either.

"It's been built into the market," he said. "There's some talk about QE3 and so forth. There won't be any announcements that will surprise anyone at this point. You won't see much of a market effect there."

Traders noted how Treasuries mostly guided the tax-exempt market. Muni yields held for Monday and Tuesday, then rose Wednesday. Yields at the front end of the curve for munis and Treasuries held fast. Since last Friday, the benchmark triple-A tax-exempt rose six basis points through Thursday's close to 1.84%. The 30-year also jumped six basis points to 2.98%.

The two-year yield held steady at 0.29% for a 35th straight session, Municipal Market Data numbers show.

Thin calendars over the past two weeks have driven the market, as well, and have pushed investor demand, Mackey said.

"There's a lot of demand; there's a lot of cash available," he said. "Money has been coming in to the market, in terms of the funds. You have that particular issue that's really pushed up demand quite a bit. You see it most acutely in specialty state areas, like New York City and Virginia, and others."

The revenue bond index, which measures 30-year revenue bond yields, declined one basis point this week to 4.42%. That is its lowest level since March 22, 2007, when it was 4.41%.

The Bond Buyer's one-year note index, which is based on one-year GO note yields, increased one basis point this week to 0.24%, which is its highest level since Aug. 22, when it was 0.27%.

The weekly average yield to maturity of the Bond Buyer muni bond index, based on 40 long-term bond prices, increased two basis points this week to 4.24% for the week ending Thursday. That is the highest weekly average for the yield to maturity since the week ended Aug. 23, when it was 4.26%.