Yields Drop on 'Another Really Positive Day'

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The municipal market was firmer again yesterday. Traders said tax-exempt yields were lower by nine or 10 basis points.

"Treasuries helped things along today, and so did us gobbling up the new issues with relative ease again," a trader in San Francisco said. "The gains ended up extending out to nine, 10 basis points, probably 10 on the shorter maturities. Just another really positive day."

Also, reflecting strength on the short end of the curve, The Bond Buyer's one-year note index reached a record low yesterday of 0.73%. That broke the previous record of 0.83%, set on June 18, 2003. The index began in July 1989.

Trades reported by the Municipal Securities Rulemaking Board showed gains as well. A dealer sold to a customer Georgia 4.5s of 2027 at 4.21%, down seven basis points from where they were sold Tuesday. Bonds from an interdealer trade of Houston 5.25s of 2028 yielded 4.62%, down 10 basis points from where they traded Tuesday. Bonds from an interdealer trade of California's Oak Grove School District 5.25s of 2025 yielded 4.57%, six basis points lower than where they traded Tuesday. A dealer bought from a customer California 5s of 2017 at 3.67%, down 10 basis points from where they were sold Tuesday.

"We're better again today," a trader in New York said. "There's a flight to quality going on with Treasuries, which is helping, but it's really just that demand is holding in there. We've been in pretty positive territory since the new year started, and that's definitely not changing today."

The Treasury market showed gains yesterday. The yield on the benchmark 10-year Treasury note, which opened at 2.29%, was quoted near the end of the session at 2.21%. The yield on the two-year note was quoted near the end of the session at 0.71% after opening at 0.74%. The yield on the 30-year bond, which opened at 3.00%, was quoted near the end of the session at 2.88%.

In the new-issue market yesterday, Morgan Stanley priced $217 million of general receipts bonds for Ohio State University. The bonds mature from 2009 through 2028, with yields ranging from 1.40% with a 3% coupon in 2010 to 4.66% with a 5% coupon in 2028. Bonds maturing in 2009 were decided via sealed bid. The bonds, which are callable at par in 2018, are rated Aa2 by Moody's Investors Service and AA by Standard & Poor's and Fitch Ratings.

The Florida State Board of Education competitively sold $200 million of public education capital outlay bonds to Merrill Lynch & Co., with a true interest cost of 4.71%. The bonds mature from 2009 through 2029, with term bonds in 2031, 2034, and 2038. Yields range from 2.63% with a 5% coupon in 2016 to 4.95% with a 4.75% coupon in 2031. Bonds maturing from 2009 through 2015 and in 2020, 2021, 2025, 2028, 2029, 2034, and 2038 were not formally re-offered. The bonds are callable at 101 in 2018, declining to par in 2019. The credit is rated Aa1 by Moody's and AA-plus by Fitch.

Delaware competitively sold $121 million of general obligation bonds to Merrill with a TIC of 2.66%. The bonds mature from 2.66% with a 3% coupon in 2018 to 4.11% with a 4% coupon in 2026. Bonds maturing from 2010 through 2017 and in 2024 and 2025 were not formally re-offered. The bonds, which are callable at par in 2017, are rated triple-A by all three major rating agencies.

RBC Capital Markets priced $75.7 million of GO bonds for Pennsylvania's Centennial School District in two series. Bonds from the $31 million Series A mature from 2009 through 2028, with term bonds in 2032 and 2037. Yields range from 1.40% with a 2.5% coupon in 2009 to 5.18% with a 5.25% coupon in 2037. Bonds from the $44.7 million Series B mature from 2010 through 2028 with term bonds in 2032 and 2037. Yields range from 1.75% with a 2% coupon in 2010 to 5.18% with a 5.25% coupon in 2037. All bonds are callable at par in 2018 and insured by Financial Security Assurance Inc. The underlying credit is rated A1 by Moody's and AA by Standard & Poor's.

Fairfax County, Va., competitively sold $58.4 million of public improvement refunding bonds to Citi with a TIC of 1.47%. The bonds mature from 2010 through 2014, with coupons ranging from 4.5% in 2010 to 3% in 2014. None of the bonds were formally re-offered. The bonds, which are not callable, are rated triple-A by all three major agencies.

In economic data released yesterday, retail sales dropped 2.7% in December after a revised 2.1% drop the previous month. Economists polled by Thomson Reuters had predicted a 1.2% decrease.

Excluding autos, retail sales fell 3.1% after a revised 2.5% drop the previous month. Economists polled by Thomson Reuters had predicted a 1.3% dip.

The U.S. import price index was down 4.2% in December following a revised 7.0% decrease in November, originally reported as a 6.7% drop. Thomson had predicted a 5.3% decrease.

Business inventories were down 0.7% and sales levels fell 5.1% in November. Business inventories slid to $1.485 billion following an unrevised 0.6% decrease in October to $1.496 billion. Thomson had projected that business inventories would be off 0.5% in the month.

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