The municipal market was weaker yesterday, following Treasuries, which sold off after the Federal Reserve announced a plan to loan dealers up to $200 billion in Treasury securities to help ease the credit crisis.

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

"It's been an interesting day," a trader in Los Angeles said. "The secondary has really gone wanting. It felt like a very heavy day in the marketplace."

The Treasury market showed pronounced losses yesterday. The yield on the benchmark 10-year Treasury note, which opened at 3.46%, finished at 3.60%. The yield on the two-year note was quoted near the end of the session at 1.74% after opening at 1.48%.

"We're following Treasuries," a trader in New York added. "We're just weaker after the Fed announced that bailout plan, and Treasuries are of course quite a bit weaker."

The Federal Reserve announced yesterday an expansion of its securities lending program. Under this new term securities lending facility, the Fed will lend up to $200 billion of Treasury securities to primary dealers secured for a term of 28 days - rather than overnight, as in the existing program - by a pledge of other securities. Those include federal agency debt, federal agency residential-mortgage-backed securities, and non-agency triple-A rated private-label residential MBS. The lending facility is intended to promote liquidity in the financing markets for Treasuries and other collateral and thus to foster the functioning of financial markets more generally.

The actions announced yesterday supplement the measures announced by the Fed on Friday to boost the size of the term auction facility to $100 billion and to undertake a series of term repurchase transactions that will cumulate to $100 billion.

In the new-issue market yesterday, Citi priced $170.8 million of grant and revenue anticipation bonds for the Idaho Housing Finance Association. The bonds mature from 2009 through 2026, with yields ranging from 2.55% with a 3% coupon in 2009 to 4.92% with a 5.25% coupon in 2026. The bonds, which are callable at par in 2018, are insured by Assured Guaranty Corp. The underlying credit is rated Aa3 by Moody's Investors Service and A-plus by Fitch Ratings.

Lehman Brothers priced $139.7 million of aviation revenue bonds for Miami-Dade County, subject to the alternative minimum tax. The bonds mature from 2010 through 2018, with a term bond in 2024. Yields range from 3.69% with a 5.25% coupon in 2010 to 5.45% with a 5.125% coupon in 2024. The bonds, which are callable at par in 2018, are insured by MBIA Insurance Corp. The underlying credit is rated A2 by Moody's, A-minus by Standard & Poor's, and A by Fitch.

The New York State Environmental Facilities Corp. competitively sold $125.7 million of state personal income tax bonds to UBS Securities LLC, with a true interest cost of 4.31%. The bonds mature from 2013 through 2027, with yields ranging from 3.03% with a 5% coupon in 2013 to 4.62% with a 5% coupon in 2025. Bonds maturing in 2026 and 2027 were not formally re-offered. The bonds, which are callable at par in 2017, are rated AAA by Standard & Poor's and AA-minus by Fitch.

Morgan Keegan & Co. priced $105.9 million of bonds for the Humble, Tex., Independent School District, in two series. Bonds from the larger series - $76.6 million of unlimited-tax school building bonds - mature from 2018 through 2028, with term bonds in 2030 and 2033. Yields range from 3.93% with a 4.25% coupon in 2018 to 5.09% with a 5% coupon in 2033. These bonds are callable at par in 2018, and are insured by Assured Guaranty.

Bonds from the smaller series - worth $29.3 million of unlimited tax refunding bonds - mature from 2009 through 2018, with yields ranging from 2.35% with a 3.5% coupon in 2009 to 3.88% with a 4% coupon in 2018. These bonds, which are not callable, are backed by the Texas Permanent School Fund guarantee program. The underlying credit is rated Aa3 by Moody's and A-plus by Standard & Poor's.

UBS priced $99.4 million of unlimited tax schoolhouse bonds for the Friendswood, Tex., Independent School District. The bonds mature from 2013 through 2028, with term bonds in 2032 and 2037. Yields range from 3.03% with a 3.5% coupon in 2013 to 5.09% with a 5% coupon in 2037. The bonds, which are callable at par in 2018, are backed by the PSF. The underlying credit is rated A1 by Moody's and A-plus by Standard & Poor's.

Virginia Beach competitively sold $90 million of general obligation bonds to Citi with a TIC of 4.16%. The bonds mature from 2008 through 2027, with yields ranging from 2.29% with a 5% coupon in 2010 to 4.17% with a 4% coupon in 2020. Bonds maturing in 2008, 2009, from 2016 through 2018, and from 2021 through 2027 were not formally re-offered. The bonds, which are callable at par in 2017, are rated Aa1 by Moody's, AAA by Standard & Poor's, and AA-plus by Fitch.

Utah's Alpine School DistrictBoard of Education competitively sold $84 million of GO school building bonds to Hutchinson, Shockey, Erley & Co. The bonds mature from 2009 through 2023, with yields ranging from 3.39% with a 3.75% coupon in 2015 to 4.52% with a 5% coupon in 2023. Bonds maturing from 2009 through 2014, and in 2017 and 2018, were not formally re-offered. The bonds, which are callable at par in 2018, are rated Aaa by Moody's.

The economic calendar was largely inactive yesterday.

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