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Market Post: Primary Well Received as Market Starts to Slow

Tax-exempts started to stall Tuesday afternoon as traders said the market prepared for activity to fall off tomorrow morning.

Still, some new issues continued to price in the primary market and were met with demand.

"It's already pretty dead," a Boston trader said. "The week is basically over. The deals that are out there are doing fine and the market is definitely steady. But the phone lines are dead."

He added by mid-morning Wednesday, the muni market will basically be closed.

In the primary market, Jefferies & Co. priced $243.4 million of Florida's Orlando Utilities Commission utility system revenue refunding bonds, rated Aa2 by Moody's Investors Service and AA by Standard & Poor's and Fitch Ratings.

Yields ranged from 0.21% with a 1.5% coupon in 2013 to 2.19% with a 5% coupon in 2025.

JPMorgan priced for institutions $145.5 million of Connecticut Housing Finance Authority housing mortgage finance program bonds, rated triple-A by Moody's and Standard & Poor's.

Bonds on the first series of $103 million were priced at par to yield from 0.25% in 2023 to 3.40% in 2042. The bonds are callable at par in 2021.

Bonds on the second series, $42.5 million of bonds subject to the alternative minimum tax, were priced at par to yield from 0.45% and 0.50% in a split 2014 maturity to 0.60% and 0.70% in a split 2014 maturity. Bonds maturing in 2035 yield 2.00% with a 2.75% coupon.

RBC Capital Markets priced $128.7 million of Dormitory Authority of the State of New York Rochester Institute of Technology revenue bonds, rated A1 by Moody's. Prices were not yet available.

Jefferies & Co. priced for institutions $88 million of University of Connecticut special obligation student fee revenue bonds, rated Aa2 by Moody's and AA-minus by Standard & Poor's.

Yields ranged from 0.20% with a 1.5% coupon in 2013 to 2.50% with a 3% coupon and 2.17% with a 5% coupon in a split 2029 maturity. The bonds are callable at par in 2022.

The Municipal Market Data scale had set new record low yields with each passing day throughout the past week but took a breather Monday.

The 10-year yield held steady at 1.50%, its record low set Friday. That record beat the previous record of 1.51% set Thursday. Before that, the MMD record was 1.54% set Wednesday and the 1.55% set last Tuesday.

The 30-year MMD yield also remained unchanged Monday, holding steady at its record low yield of 2.54% set Friday. The previous record was 2.55% set Thursday and before that, 2.60% set Wednesday and 2.64% set last Tuesday.

The two-year finished steady at 0.30% for the 37th consecutive trading session.

Treasuries continued to weaken Tuesday for the second session. The benchmark 10-year yield and the 30-year yield jumped four basis points each to 1.65% and 2.80%, respectively. The two-year increased two basis points to 0.26%.

"The election-assisted municipal bond rally, which included nine consecutive trading sessions of higher prices, finally paused as prices were relatively unchanged," wrote Anthony Valeri, senior vice president of research at LPL Financial. "Since the election, municipals have outperformed Treasuries notably on the prospect of higher taxes, with the average 10-year AAA-rated municipal yield falling by 0.24% compared to a 0.14% decline in the 10-year Treasury yield."

He added, "Average AAA-rated municipal bond yields are now below Treasuries for the first time since the first quarter of 2012, with the 10- and 30-year municipal yields at 95% and 96% of comparable Treasury yields, respectively."

In economic news, Federal Reserve Board Chairman Ben Bernanke spoke and said economic recovery needs to be established before the Fed starts to normalize policy.

Bernanke defended the FOMC's stance to remain highly accommodative until mid-2015 and said "a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens. In other words, we will want to be sure that the recovery is established before we begin to normalize policy. We hope that such assurances will reduce uncertainty and increase confidence among households and businesses, thereby providing additional support for economic growth and job creation."

He added headwinds include the looming fiscal cliff. And while regulators need to address the federal budget, policymakers need "to avoid unnecessarily adding to the headwinds that are already holding back the economic recovery."

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