A weak Treasury auction and unfriendly inflation news hacked more than 3/4 point off the government s long bond yesterday, while municipals, though braised, suffered less.

"I guess it could be worse," one municipal trader said of the descent of the U.S. long bond following the Treasury's auction of 30 1/4-year bonds. "It's not just a free fall. We just seem to have come down a point and now we're kind of sitting." At midafternoon, the trader judged that municipals were down roughly 1/2 point. While tax-exempts are currently "in pretty good shape" relative to Treasuries, the trader said that things could change.

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