The municipal market was weaker yesterday, reflecting losses in the Treasury market.

Traders said tax-exempt yields were higher by three to five basis points.

"To start the day, I think the market was somewhat distracted by the headlines about the bond insurance companies, but overall as the day went on and news was out, people started looking forward to the employment data and sat on the sidelines," a trader in Chicago said. "All of sudden, there are a lot of bonds around. Buyers are getting selective. Deals are getting done, but it's not easy."

On Wednesday, Moody's Investors Service placed triple-A rated MBIA Insurance Corp. and Ambac Assurance Corp. on review for a possible downgrade. In addition, Standard & Poor's yesterday downgraded both insurers from triple-A to double-A and placed them on negative watch.

Trades reported by the Municipal Securities Rulemaking Board yesterday showed losses. A dealer sold to a customer Hamilton County, Ohio 5s of 2032 yielding 4.67%, up two basis points from Tuesday. A dealer sold to a customer Virginia's Hampton Roads Sanitation District 5s of 2038, yielding 4.6%, up five basis points from where they traded Wednesday. A dealer sold to a customer Manitowoc, Wis. 5.25s of 2029 yielding 4.94%, up four basis points from where they were Wednesday. A dealer sold to a customer Massachusetts 5s of 2037 yielding 4.62%, up five basis point from where they traded Tuesday. Bonds from an interdealer trade of insured San Diego Unified School District 5s of 2028 yielded 3.37%, up five basis points from where they traded Wednesday.

"From my perspective, it's extremely dull," a trader in Los Angeles said. "The market is down around four basis points, depending on the structure. In the front, it's probably nothing or even up a bit, but once you get out to the 10-year, it's probably down three to four basis points. It's hard to get people excited."

The Treasury market showed losses today. The yield on the benchmark 10-year Treasury note, which opened at 3.97%, finished at 4.06%. The yield on the two-year note was quoted near the end of the session at 2.52%, after opening at 2.46%.

"We had surprising drop in unemployment claims, and some of the high-frequency data has been better than expected," said Matthew Moore, economist strategist at Banc of America Securities LLC. "Rebates might be starting to have an effect. This is causing the selling in the Treasuries."

Initial jobless claims for the week ended May 31 came in at 357,000, after a revised 375,000 the previous week. Economists polled by IFR Markets had predicted 374,000 initial jobless claims.

Also, continuing jobless claims for the week ended May 24 came in at 3.093 million, after a revised 3.109 million the previous week. Economists polled by IFR had predicted 3.093 million continuing jobless claims.

In economic data today, the May non-farm payrolls report is due for release along with April wholesale inventories and April wholesale sales. Economists polled by IFR are predicting that 60,000 jobs were lost in May. They are also forecasting a 0.5% uptick in wholesale inventories, and a 0.5% rise in wholesale sales.

"We don't expect [non-farm payroll data] to be as weak as the market does," said Jonathan Basile, economist at Credit Suisse. "So if it goes down 10,000 [jobs] instead of 50,000, that's the sort of thing that could help stocks and put downward pressure on bonds. If the job market is not deteriorating as much as it was, that's a positive, even if it's just a smaller negative."

"We've had a run of data that's had a 'not-as-bad' feel to it," Basile continued. "These numbers have come still deteriorating, but not as bad. That would build the expectation that things could be starting to turn, but obviously you need more than a month to know."

In the new-issue market yesterday, Lehman Brothers priced $500 million in tax and revenue anticipation notes for Los Angeles County. The notes mature in June 2009, yielding 1.58% on a 3% coupon. The bonds are rated MIG-1 by Moody's Investors Service, SP-1-plus by Standard & Poor's, and F1-plus by Fitch Ratings.

Lehman Brothers also priced $288.9 million in electric and gas systems revenue bonds for San Antonio. The bonds mature 2017 through 2029, with two term bonds in 2032. Yields range from 3.76% on a 5% coupon in 2017 to 4.78% on a 4.5% coupon in 2032. The bonds, which are callable at par in 2018, are rated Aa1 by Moody's, AA by Standard & Poor's, and AA-plus by Fitch.

Kern County, Calif., competitively sold $155 million in tax and revenue anticipation notes to Banc of America, with a true interest cost of 1.60%. The 3%-coupon note matures in June 2009 and is rated SP-1-plus by Standard & Poor's.

Goldman, Sachs & Co. priced $105 million in residential mortgage revenue bonds for the Ohio Housing Finance Agency, subject to the alternative minimum tax. Bonds from the series D issue mature 2010 to 2018, with term bonds in 2023, 2028 and 2033. The bonds were all priced at par, with coupons ranging from 3.6% in 2010 to 5.4% in 2033. The bonds, which are callable in 2018, are rated Aaa by Moody's.

Also, Raymond James & Associates priced $84.4 million in health facilities project bonds for Florida's Hillsborough County Industrial Development Authority for the benefit of University Community Hospital. Bonds mature 2009 through 2023, with a term bond in 2029. Yields range from 3.52% on a 4% coupon in 2009 to 5.83% on a 5.625% coupon in 2029. The bonds, which are callable at par in 2018, are rated Baa3 by Moody's and BBB by Standard & Poor's.

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