The municipal market was firmer by about three basis points yesterday, following Treasury gains, as a $1.1 billion deal for New York’s Triborough Bridge and Tunnel Authority came to market.

“There’s been a good amount of action in the shorter end, primarily within about five years, and after that, it is sort of catch-as-catch-can,” a trader in Los Angeles said. “There’s not as much activity as I’d like to see in the intermediate and longer end.”

In the new-issue market yesterday, Citi priced more than $1.1 billion of revenue bonds for the TBTA in two series. Bonds from the larger $631.2 million series of general revenue bonds mature from 2009 through 2030, with term bonds in 2033 and 2038. Yields range from 2.38% with a 5% coupon in 2010 to 4.73% with a 5% coupon in 2038. Bonds maturing in 2009 will be decided via sealed bid. The bonds are callable at par in 2018, and are rated Aa2 by Moody’s Investors Service, AA-minus by Standard & Poor’s, and AA by Fitch Ratings.

Bonds from the smaller $487.9 million series of subordinate revenue bonds mature from 2008 through 2028, with a term bond in 2031. Yields range from 2.43% with a 3.5% coupon in 2010 to 4.78% with a 5% coupon in 2031. Bonds maturing in 2008 and 2009 will be decided via sealed bid. The bonds, which are callable at par in 2018, are rated Aa3 by Moody’s, A-plus by Standard & Poor’s, and AA-minus by Fitch.

Troubled government-sponsored enterprises Freddie Mac and Fannie Mae saw shares of their stocks continue to spiral downward, as uncertainty persisted around a potential government rescue plan. Freddie Mac shares finished at $5.29 on the New York Stock Exchange yesterday, down 25.60%. It traded in a range from $4.68 to $6.34. Fannie Mae shares finished at $7.03 on the NYSE, down 27.75%. It traded in a range from $6.82 through $8.56.

Evan Rourke, portfolio manager at MD Sass, thinks that the GSE trade has had some impact on trading the municipal market.

“I think it’s added to some of the volatility in muni cash and in swaps, so at times, it’s created extra incentive for selling from leverage accounts,” he said. “It’s made them a little more flexible, and at times, it’s created maybe better opportunity to buy bonds, so I think it’s added a little volatility to our market. And I also think there’s concern about what effect [Fannie and Freddie] having to sell their housing portfolios might have on the market.”

The Los Angeles trader added that there are many factors influencing munis right now.

“There’s so much uncertainty out there, I think people’s first choice is to sit on their money, and the second choice is they want to find something pretty safe,” the trader said. “I think that’s why we’ve seen so much activity in the short end. It just feels like it’s the classic flight-to-quality.”

Federal Reserve Board chairman Ben Bernanke yesterday began his two-day semiannual testimony before Congress, speaking before the Senate Banking Committee. He said that while the direction of interest rates is unclear, helping financial markets return to normalcy is a top priority.

Treasuries rallied strongly earlier in the day following Bernanke’s comments, which appeared to add to the market’s skepticism the Fed will raise interest rates in the near future, said Eric Lascelles, chief economist and rate strategist at TD Securities. But the fall in the oil prices buoyed the stock market later in the day, somewhat dampening the Treasury gains.

“We got a fair-sized rally going on and a steepener, but it’s a far cry from what we got off the bat,” Lascelles said. “It seems almost like you’ve almost had two phases to the day.”

The Treasury market posted gains with the yield on the benchmark 10-year Treasury note, which opened at 3.86%, finished at 3.83%. The yield on the two-year note was quoted near the end of the session at 2.39%, after opening at 2.45%.

“It’s quiet, but munis are probably up a bit because of Treasuries, though certainly not as much as they are,” a trader in New York said. “There seem to be more sellers than [Monday], though.”

In economic data released yesterday, the producer price index rose 1.8% in June, after a 1.4% increase the previous month. Economists polled by IFR Markets had predicted a 1.4% uptick.

The PPI core rose 0.2% in June, after a 0.2% increase the previous month. Economists polled by IFR Markets had predicted a 0.3% gain.

Retail sales climbed 0.1% in June, after a revised 0.8% gain the previous month. Economists polled by IFR had predicted a 0.5% increase.

Excluding autos, retail sales grew 0.8% in June, after a 1.2% rise the previous month. Economists polled by IFR had predicted a 1.0% rise.

Business inventories were up 0.3% and sales levels rose 0.8% in May. Business inventories rose to $1.479 billion following an unrevised 0.5% gain in April to $1.474 billion. IFR Markets had projected that business inventories would be up 0.5% in the month. Meanwhile, the 0.8% increase in overall business sales brought the category to $1.189 billion. The May figure followed an upwardly revised 1.5% increase in April, and compared to IFR’s projected 1.1% increase.



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