The municipal market firmed yesterday by one or two basis points in modest activity as many in the cash market stayed on the sidelines ahead of the Federal Reserve's decision on interest rates today and April employment data Friday.

"There's been a return to stability," a trader in New York said. "People who were offering bonds didn't seem as anxious to sell as they have been recently."

Even with secondary activity somewhat less than robust, underwriters priced several large deals in the primary. Pricing for the new deals was firm.

"I think a lot of people are just waiting for the Fed to act and cut the fed funds rate 25 basis points," a trader in New York said. "But overall it's been a quiet day in the secondary."

Treasuries provided ballast for the market, posting gains today due to declining stocks, signs of further weakening in the housing sector, and a drop in the April consumer confidence index - which fell to 62.3 from an upwardly revised 65.9 last month. The March index reading was originally reported as 64.5.

Suggesting little to no improvement in the housing market, the Standard & Poor's/Case-Shiller home price index also fell 12.7% yesterday.

"That's the root of all the problems so that is adding back to the bid for quality assets like Treasuries," said Matthew Moore, chief Treasury and agency strategist at Banc of America Securities LLC.

In this environment, market participants expect the Federal Reserve to cut the fed funds target rate by 25 basis points today, but they will scrutinize the Fed's statement for the presence of a sentence referencing "downside risks to growth."

"If the Fed drops that statement, the market could see that as the Fed going to go on hold," Moore said. "If the Fed keeps that statement the market could look for more easing in the future."

Banc of America expects the target rate to eventually settle at 1.50% over the next six months.

"We are moving from a period of financial stress, which seems to be moderating," Moore said. "Now we are getting the economic stress from that and we saw that today with continuing house price declines and the drop in consumer confidence."

In late trading, the two-year Treasury note was quoted unchanged to yield 2.34%, the 10-year note was quoted up 7/32 to yield 3.80%, and the 30-year bond was quoted up 15/32 to yield 4.53%.

Trades reported by the Municipal Securities Rulemaking Board showed some gains. Bonds from an interdealer trade of New York's Liberty Development Corp. 5.25s of 2035 yielded 5.05%, down one basis point from where they were sold Monday. Bonds from an interdealer trade of California Health Facilities Financing Authority 5s of 2038 yielded 5.18%, one basis point lower than where they traded Monday. Bonds from an interdealer trade of Arizona Health Facilities Authority 5s of 2035 yielded 5.20%, even with where they were sold Monday. Bonds from an interdealer trade of insured Texas' Alamo Community College District 4.5s of 2025 yielded 4.64%, two basis points lower than where they traded Monday.

In the new-issue market, Goldman Sachs & Co. priced and repriced $380 million Illinois Finance Authority revenue bonds on behalf of the Children's Memorial Hospital.

At a repricing, yields on Series 2008A bonds were lowered by three basis points in 2033 and by two basis points in 2041 and 2047.

The scale comprised $210 million of insured revenue bonds: a 2033 maturity was priced as 5.25s to yield 5.17%, a 2041 maturity priced as 5s to yield 5.28%, and a 2047 maturity priced as 5.25s to yield 5.38%. Assured Guaranty Corp. insured this series.

On Series 2008B bonds, yields were lowered by two basis points in 2022 and 2023 at the repricing.

The scale on Series 2008B contained $170 million of revenue bonds priced to yield from 4.29% in 2015 to 5.18% in 2023. A 2028 maturity was priced as 5.5s to yield 5.38% and a 2039 maturity was priced as 5.5s to yield 5.52%.

Both series carry underlying ratings of A-minus from Standard & Poor's and AA-minus from Fitch Ratings.

In addition, JPMorgan priced for institutions $280 million of California Department of Water Resources power supply revenue bonds following a retail order period Monday.

The issue comprised a split 2018 maturity: the first part comprising $27 million and priced as 4s to yield 4.10% and the second part comprising $253 million priced as 5s to yield 4.10%.

The bonds are rated Aa3 by Moody's Investors Service, A by Standard & Poor's, and A-plus by Fitch.

Citi priced and repriced $158 million of Redding, Calif., electric system revenue certificates of participation.

Yields ranged from 1.92% in 2009 through 4.75% in 2027. A term maturity in 2030 was priced as 5s to yield 4.85%.

The COPs are insured by Financial Security Assurance and carry underlying ratings of A2 from Moody's and A-plus from Fitch.

In the competitive sector, Virginia Beach sold $52.5 million of general obligation public improvement refunding bonds to Banc of America at a true interest cost of 2.87%. BB&T Capital Markets had the cover bid with a TIC of 2.89%.

Bonds were reoffered at yields ranging from 2.72% in 2011 to 3.33% in 2015. Bond due in 2008 though 2010, 2012 and 2014 were not formally reoffered.

The bonds are rated Aa1 by Moody's, AAA by Standard & Poor's, and AA-plus by Fitch.

Dakin Campbell and Michael Scarchilli contributed to this column.

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