In afternoon trade, yields on high-quality munis fell by as much as 12 basis points on Municipal Market Data's benchmark triple-A scale.

Yields on 10-year munis were down 9 to 12 basis points and 30-year yields were down 8 to 10 basis points, according to a preliminary read from MMD, a unit of Thomson Reuters.

On Tuesday, the muni market took a breather and closed unchanged. On no day this month have prices closed lower.

The muni market was waking up from listless trading earlier in the week after Standard & Poor's Ratings Services on Friday downgraded the United States to AA-plus from AAA.

"You couldn't give bonds away Monday and Tuesday; no one cared," said Fred Yosca, a managing director at BNY Mellon Capital Markets.

As of Tuesday's close, 10-year munis were yielding 113 percent of comparable Treasuries, while 30-year munis were yielding 112 percent, according to MMD.

So far this month, municipal bond yields have fallen to lows not seen since November 2010.

On Tuesday, 10-year muni yields stood at 2.38 percent with 30-year yields at 3.92 percent. On July 29, the last time prices closed lower, 10-year yields were at 2.67 percent and 30-year yields were at 4.35 percent.

In the new issue market, underwriters launched $300 million of 100-year taxable bonds for the University of Southern California (USC) at 5.25 percent, according to IFR, a unit of Thomson Reuters.

The USC bonds are structured in a bullet maturity with a due date of Oct. 1, 2111 and were priced through joint lead managers Morgan Stanley and Goldman Sachs & Co.

Separately, Moody's Investors Service on Wednesday said most municipal bond issuers are "well insulated from shock," but added that some could be weakened during significant market volatility.

Copyright Reuters, 2011