The municipal market continued its resurgence yesterday, as participants enjoyed the third straight session of significant gains.

Traders said the market continued its steep rally from Wednesday - when The Bond Buyer's 40-bond index posted the biggest gains since the index began in 1984 - with yields lower by eight to 10 basis points overall.

"What a difference a couple of days make," a trader in New Jersey said. "The selling pressure finally subsided, and the market is loosening up. When people were forced to deleverage, they really had no choice but to sell. Now without the selling and ratios as high as they are, munis look attractive. Now we're faced with some pent-up new-issue supply, but there's still a lot of areas where supply is thin."

"Obviously, the rally wasn't quite as steep as [Wednesday], but gosh, what is? That was a pretty historic one," a Los Angeles trader said. "But the tone is still very positive, and there's still a lot trading on both retail and institutional ends."

Meanwhile, American Insurance Group Inc. reclassified $270 million worth of muni bonds to "available for sale" from "held to maturity," according to spokesperson Peter Tulupman. AIG would not confirm that the bonds were being sold yesterday.

However, muni traders indicated AIG put a bid list in the market yesterday worth approximately $150 million, of which all but two blocks were traded.

"That AIG list is out there, but it didn't seem to really unnerve the market much," a trader in New York said. "The tone right now is very positive, so while something like this has the potential to derail that positive momentum a bit, it just wasn't happening right now."

Howard Mackey, president of the broker-dealer business unit of Rice Financial Products, said the fact that so much of the AIG list was absorbed was "an extremely positive indicator for the market."

"That in itself is fairly strong evidence that there is much more confidence in the marketplace," he said. "A few weeks ago, it would be very difficult to trade a list that size."

In the new-issue market yesterday, Citi priced $229.6 million of certificates of participation for Colorado. The bonds mature from 2009 through 2019, with term bonds in 2023 and 2027. Yields range from 2.55% with a 3% coupon in 2009 to 5.60% with a 5.5% coupon in 2027. The bonds, which are callable at par in 2018, are rated Aa3 by Moody's Investors Service and AA-minus by Standard & Poor's.

Morgan Stanley priced $127.3 million of senior-lien wastewater system revenue refunding bonds for the Phoenix Civic Improvement Corp. The bonds mature from 2016 through 2021, with yields ranging from 4.25% in 2016 to 5.18% in 2024, all with 5.5% coupons. The bonds, which are callable at par in 2018, are rated Aa3 by Moody's and AAA by Standard & Poor's.

JPMorgan priced $101.2 million of revenue bonds for the Oklahoma Municipal Power Authority. The bonds mature from 2015 through 2020, with term bonds in 2028 and 2038. Yields range from 4.75% with a 5% coupon in 2015 to 6.00% priced at par in 2038. The bonds, which are callable at par in 2018, are rated A2 by Moody's and A by Standard & Poor's.

The Beaufort County, S.C., School District competitively sold $62.2 million of general obligation bond anticipation notes to Goldman, Sachs & Co. with a net interest cost of 1.61%. The notes mature in November 2009, yielding 1.60% with a 2.5% coupon. The credit is rated MIG-1 by Moody's and SP-1-plus by Standard & Poor's.

Wachovia Bank NA priced $55.7 million of notes for Ohio's Maple Heights City School District. The notes mature in Nov. 2009, yielding 2.60% with a 3.5% coupon. The issuer is rated A2 by Moody's, while the notes are rated MIG-1 by Moody's.

Trades reported by the Municipal Securities Rulemaking Board showed gains yesterday. A dealer bought from a customer California 5.25s of 2038 at 5.85%, down 10 basis points from where they traded Wednesday. Bonds from an interdealer trade of insured New York Metropolitan Transportation Authority 5s of 2031 yielded 5.44%, nine basis points lower than where they were sold Wednesday. A dealer sold to a customer Port Authority of New York and New Jersey 5s of 2025 at 6.12%, eight basis points lower than where they were sold Wednesday. Bonds from an interdealer trade of insured Los Angeles Unified School District 5s of 2030 yielded 5.50%, down 10 basis points from where they traded Wednesday. A dealer sold to a customer Illinois Finance Authority 5.5s of 2038 at 6.57%, down nine basis points from where they traded Wednesday.

The Treasury market, however, was mixed yesterday. The yield on the benchmark 10-year Treasury note, which opened at 3.60%, was quoted near the end of the session at the same level. The yield on the two-year note was quoted near the end of the session at 1.52% after opening at 1.50%. And the yield on the 30-year bond, which opened at 4.06%, was quoted near the end of the session at 3.99%.

In economic data released yesterday, initial jobless claims came in at 478,000 the week ended Oct. 18 after a revised 463,000 the previous week. Economists polled by Thomson Reuters had predicted 470,000 initial jobless claims.

Continuing jobless claims came in at 3.720 million the week ended Oct. 11, after a revised 3.726 million the previous week. Economists polled by Thomson had predicted 3.760 million continuing jobless claims.

Jack Herman contributed to this column.

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