Tax-Exempt Yields Down 1 to 2 Basis Points

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The municipal market was slightly firmer yesterday. Traders said tax-exempt yields were lower by one or two basis points.

"There's a decent bid out there, but we're still underperforming Treasuries," a trader in New York said. "It's probably a bit firmer, but nothing too special."

Trades reported by the Municipal Securities Rulemaking Board yesterday showed gains. Bonds from an interdealer trade of Financial Security Assurance Inc.-insured San Francisco City and County Public Utility 4.75s of 2036 yielded 5.00%, down three basis points from where they were sold Tuesday. A dealer sold to a customer New York State Dormitory Authority 5s of 2038 yielded 4.85%, down one basis point from where they traded Tuesday.

A dealer sold to a customer Assured Guaranty Corp.-backed Kentucky Economic Development Finance Authority 6s of 2038 at 6.12%, one basis point lower than where they were sold Tuesday. Bonds from an interdealer trade of Port Authority of New York and New Jersey 5s of 2038 yielded 4.80%, two basis points lower than where they traded Tuesday. A dealer sold to a customer California 4.5s of 2026 at 4.83%, down one basis point from where they traded Tuesday.

The Treasury market showed some gains yesterday. The yield on the benchmark 10-year Treasury note, which opened at 3.73%, finished at 3.70%. The yield on the two-year note was quoted near the end of the session at 2.25% after opening at 2.26%. The yield on the 30-year Treasury finished at 4.32% after opening at 4.35%.

In the new-issue market, New Jersey competitively sold $1.8 billion of tax and revenue anticipation notes to various bidders. Merrill Lynch & Co. won the largest piece, $1.75 billion, with a net interest cost of 1.6107%. Citi took the remaining $50 million with a NIC of 1.6069%. The Trans mature in June 2009, yielding 1.59% with a 3% coupon. The credit is rated MIG-1 by Moody's Investors Service, SP-1-plus by Standard & Poor's, and F1-plus by Fitch Ratings.

In other activity, Morgan Stanley priced $187.9 million of single-family revenue bonds for the Massachusetts Housing Finance Agency in multiple series.

Bonds from a $5.1 million series of bonds subject to the alternative minimum tax mature in 2010 and 2023, yielding 3.20% and 5.65%, respectively, both priced at par. The bonds are callable at par in 2018. Bonds from a $16 million series of non-AMT bonds mature from 2009 through 2012, with yields ranging from 1.95% in 2009 to 3.20% in 2012, all priced at par. The bonds are not callable.

Bonds from a $57.6 million series of non-AMT bonds mature in 2028, 2033, and 2039, yielding 5.125%, 5.35%, and 5.40%, respectively, all priced at par. The bonds are callable at par in 2018. And bonds from a $109.3 million series of non-AMT bonds mature from 2013 through 2018, with term bonds in 2023, 2028, 2033, and 2037. Yields range from 3.45% in 2013 to 5.40% in 2037, all priced at par. The bonds are callable at par in 2018.

The credit is rated Aa2 by Moody's and AA by Standard & Poor's.

Banc of America Securities LLC priced $111.6 million of unlimited-tax bonds forthe Edinburg, Tex., Consolidated Independent School District. The bonds mature from 2009 through 2028, with term bonds in 2030, 2033, and 2038. Yields range from 2.20% with a 3.5% coupon in 2010 to 5.08% with a 5% coupon in 2038. Bonds maturing in 2009 were not formally re-offered. The bonds, which are callable at par in 2018, are backed by the state's Permanent School Fund guarantee program. The underlying credit is rated A by both Standard & Poor's and Fitch.

JPMorgan priced $103.2 million of tax-exempt and taxable bonds for Bexar County, Tex., in multiple series. Bonds from the $46.1 million tax-exempt refunding Series A mature from 2009 through 2028, with term bonds in 2038 and 2047. Yields range from 1.78% with a 3.5% coupon in 2009 to 5.37% with a 5.25% coupon in 2037. Bonds from the $51.5 million taxable refunding Series B mature from 2009 through 2013, with term bonds in 2018, 2023, and 2032. And bonds from the $5.6 million tax-exempt revenue Series C mature from 2010 through 2023, with term bonds in 2028 and 2037.

Yields range from 2.28% with a 3.5% coupon in 2010 to 5.16% with a 5% coupon in 2037. Bonds from the two tax-exempt series are callable at par in 2018. The bonds are insured by Berkshire Hathaway Assurance Co. The underlying credit is rated A2 by Moody's, A-minus by Standard & Poor's, and A by Fitch.

Hudson County, N.J., competitively sold $27.6 million of federally taxable bond anticipation notes to PNC Capital Markets, with a NIC of 4.05%. The Bans mature in Sept. 2009, yielding 4.05%, priced at par.

California's Marysville Joint Unified School District competitively sold $19 million of general obligation bonds to Morgan Stanley with a true interest cost of 4.84%. The bonds mature from 2009 through 2033, with yields ranging from 1.70% with a 5% coupon in 2009 to 4.85% with a 4.75% coupon in 2033. The bonds, which are callable at par in 2016, are insured by FSA. The underlying credit is rated A-plus by Standard & Poor's.

In economic data released yesterday, factory orders rose 1.3% in July, after a revised 2.1% increase the previous month. Economists polled by IFR Markets had predicted a 0.8% uptick.

Also, factory orders excluding transportation climbed 1.0% in July, after a revised 2.7% increase the prior month. Economists polled by IFR had predicted a 1.5% rise.

Later this week, a slate of economic data will be released, highlighted by tomorrow's release of the August non-farm payrolls report. Today, initial jobless claims for the week ended Aug. 30, continuing jobless claims for the week ended Aug. 23, and the August ISM non-manufacturing index will be released.

Economists polled by IFR Markets are predicting a 75,000 loss in non-farm payrolls. They are also forecasting 420,000 initial jobless claims, 3.425 million continuing jobless claims, and a 50.0 reading for the ISM non-manufacturing index.

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