Demand among retail investors surged yesterday for New York City general obligation paper and California revenue anticipation notes, even as secondary market conditions remained soft. Traders said tax-exempt yields were higher by six to eight basis points.

"It's bad. There continues to be a lot of selling pressure crushing everything around," a trader in New Jersey said. "It makes it very difficult for new issuers to come to market. It's brutally painful; you're taking losses on everything."

In the new-issue market yesterday, Morgan Stanley priced for retail investors $200 million of general obligation bonds for New York City. This follows the city Tuesday postponing this deal, which was originally slated to price for retail Tuesday and yesterday, with institutional pricing today. Also, the deal was originally scheduled to be worth $300 million.

According to Carol Kostik, the city's deputy comptroller for public finance, New York took in over $390 million of retail orders yesterday, almost double the amount of the offering. Costik said the city expects to come to market today to "wrap up the pricing with institutional as well as retail sales."

"We are looking at a tax-exempt size of $500 million. That is our preliminary plan as of this evening, we'll obviously look at that in the morning," Kostik said. "Retail has been one of our strongest buying segments for a number of years now. The greatest demand was at the long end with a 6% coupon, but even in the early years, we had a healthy demand."

Bonds from a $155 million tax-exempt series mature from 2010 through 2016, with term bonds in 2023 and 2028. Yields ranged from 3.25% priced at par in 2010 to 6.40% with a 6.25% coupon in 2028. The bonds are callable at par in 2018. The deal also contains a $45 million taxable component, which matures in 2020 and is not callable. The credit is rated Aa3 by Moody's Investors Service, AA by Standard & Poor's, and AA-minus by Fitch Ratings.

Banc of America Securities LLC priced for retail investors $4 billion of California revenue anticipation notes. This was the second of a two-day retail order period, to precede institutional pricing today.

A $1 billion piece matures in May 2009, yielding between 3.75% and 4.00% with a 5.5% coupon, while the larger $3 billion piece matures in June 2009, yielding between 4.25% and 4.50% with a 5.5% coupon. The credit is rated MIG-1 by Moody's, SP-1 by Standard & Poor's, and F1 by Fitch.

As of 1:30 p.m. Eastern time yesterday, a total of $3.4 billion had been sold to retail customers through the two day retail order period. About $489.6 million had been sold from the May 2009 maturity, while more than $2.9 billion of the June 2009 maturity was sold. That represents 85.8% of the total $4 billion offering. In the state's last Ran sale, a 2007 $7 billion transaction, only 23%, or $1.61 billion, was sold to retail customers.

A total of $1.836 billion was sold to retail Tuesday, during the first day of the order period. Of the Rans maturing in May 2009, $327.4 million were sold Tuesday, while $1.5 billion of the June 2009 maturity was sold to retail during day one.

"This response from individual investors is an excellent start to the transaction and a strong reentry into the credit markets for California," state Treasurer Bill Lockyer said in a statement after the first day of the order period. "With all the upheaval and uncertainty in the economic environment, to get more than $1.8 billion in orders from individual investors the first day, and to set an expected yield range that tops out at 4.5%, has to be considered impressive in our view. We're now well down the road to completing a good deal that makes sense for California taxpayers."

Elsewhere in the new-issue market, Citi priced $231.3 million of turnpike subordinate revenue bonds for the Pennsylvania Turnpike Commission. The bonds mature from 2010 through 2018, with term bonds in 2023, 2028, and 2038. Yields range from 3.70% with a 4% coupon in 2010 to 6.50% with a 6.25% coupon in 2038. The bonds, which are callable at par in 2018, are backed by Assured Guaranty Corp. The underlying credit is rated A2 by Moody's and A-minus Standard & Poor's.

First Southwest Co. priced $100 million of unlimited tax school building bonds for Texas' Frisco Independent School District in two series. Bonds from the larger $98.2 million series of current interest bonds mature from 2017 through 2025, with term bonds in 2028, 2033, and 2038. Yields range from 5.00% priced at par in 2017 to 6.25% with a 6% coupon in 2038. The bonds are callable at par in 2018.

The deal also contains a $1.8 million series of capital appreciation bonds, which matures from 2011 through 2016. Bonds from this series are not callable. All the bonds are backed by the Permanent School Fund guarantee program. The underlying credit is rated Aa3 by Moody's and A by Fitch.

However, despite what has come to market successfully, more deals have joined the growing list of deals that have been postponed since mid September.

Earlier this week, Connecticut moved its $425 million special tax obligation refunding bond sale, originally set to be priced by Goldman, Sachs & Co. yesterday, to the day-to-day calendar.

Yesterday, Pennsylvania's Lower Merion Township postponed a $10 million competitive sale of GOs, which was slated to come to market yesterday. The deal is now slated for competitive sale on Oct. 22.

Since Sept. 18, more than 200 bond and note sales, both competitive and negotiated, totaling more than $11 billion, have been rescheduled for later dates, postponed indefinitely, or cancelled outright. This is based on information compiled by The Bond Buyer from its offerings calendars. On Sept. 12, 30-year AAA GO bonds yielded 4.56%, according to MMD. As of Tuesday's close, the same bonds yielded 5.89%.

The Treasury market was firmer yesterday. The yield on the benchmark 10-year Treasury note, which opened at 4.08%, finished at 3.97%. The yield on the two-year note, which opened at 1.81%, finished at 1.57%. And the yield on the 30-year Treasury bond, which opened at 4.27%, finished at 4.23%.

The Bond Buyer's one-year note index rose 30 basis points this week to 2.69%, which is its highest level since 2.92% on Jan. 2.

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