The municipal market was firmer yesterday, following Treasuries, as California opened a retail order period on its $3.2 million of economic recovery bonds, the week's largest scheduled transaction.

Lehman Brothers priced the California ERBs for retail investors in two series. Bonds from the $1.3 billion Series A mature from 2008 through 2011, with a term bond in 2023. Yields range from 2.20% with a 3% coupon in 2009 to 4.15% with a 4% coupon in 2023. Bonds maturing in 2008 and some bonds maturing in 2009 were priced via sealed bid. Bonds from the $1.9 billion Series B contain six maturities in 2023, with yields ranging from 2.65% to 2.83%, and with coupons ranging from 3% to 5%.

The bonds are rated Aa3 by Moody's Investors Service, AA-plus by Standard & Poor's, and AA-minus by Fitch Ratings. Institutional pricing is scheduled for Thursday.

Traders said tax-exempt yields were lower by about three or four basis points.

"We improved because of Treasuries, which improved on the losses in the stock market," a trader in Los Angeles said. "I'm seeing more firmness on the short end, perhaps as much as five basis points, but overall, I think you're looking at three, maybe four basis points more expensive."

The Treasury market showed gains yesterday. The yield on the benchmark 10-year Treasury note, which opened at 3.65%, finished at 3.59%. The yield on the two-year note was quoted near the end of the session at 1.94% after opening at 2.07%.

In economic data released yesterday, the Institute for Supply Management's non-manufacturing business activity composite index was 41.9 in January, down from 54.4 in December, on a seasonally adjusted basis. This was the first time in 58 months the index showed contraction. Economists polled by IFR Markets had expected a 53.0 level.

In other new-issue market activity, Lehman priced $172.7 million of public improvement refunding bonds for Austin. The bonds mature from 2008 through 2021, with yields ranging from 2.05% with a 5% coupon in 2009 to 3.87% with a 5% coupon in 2021. Bonds maturing in 2008 were decided via sealed bid. 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.

Glendale, Calif., competitively issued $110 million of revenue bonds in two series. The city sold $60 million of electric revenue bonds to Morgan Stanley with a true interest cost of 4.64%. The bonds mature from 2018 through 2029, with term bonds in 2031, 2035, 2037, and 2038. Yields range from 3.40% with a 5% coupon in 2018 to 4.10% with a 5% coupon in 2038. The bonds, which are callable at par in 2018, are insured by Assured Guaranty Corp.

Glendale also sold $50 million of water revenue bonds to Piper Jaffray & Co. with a TIC of 4.49%. The bonds mature from 2013 through 2038. All of the bonds were not formally re-offered, are callable at par in 2018 and are uninsured. The credit is rated Aa3 by Moody's, AA by Standard & Poor's, and AA-minus by Fitch.

Triple-A rated Cambridge, Mass., competitively sold $69.9 million of general obligation municipal purpose loan bonds to Citi with a TIC of 3.42%. The bonds mature from 2009 through 2028, with yields ranging from 2.25% with a 3% coupon in 2011 to 4.20% with a 4% coupon in 2028. Bonds maturing in 2009 and 2010 were not formally re-offered. The bonds are callable at par in 2018.

The Plano, Tex., Independent School District competitively sold $58.3 million of school building unlimited-tax bonds to UBS Securities LLC with a TIC of 4.22%. The bonds mature from 2009 through 2026, with term bonds in 2028 and 2033. Yields range from 2.25% with a 3.25% coupon in 2010 to 4.42% with a 4.3% coupon in 2026. Bonds maturing in 2009, 2011, 2012, 2014, 2024, 2028, and 2033 were not formally re-offered.

The bonds, which are callable at par in 2018, are insured by the Permanent School Fund guarantee program. The underlying credit is rated Aa1 by Moody's and AA by Standard & Poor's.

RBC Capital Markets priced $56.5 million of revenue bonds for the Pennsylvania Higher Educational Facilities Authority. The bonds mature in 2018, 2028, 2038, and 2042, yielding 4.95% with a 5% coupon, 5.80% with a 5.75% coupon, 5.95% with a 5.875% coupon, and 6.00% at par, respectively. The bonds, which are callable at par in 2018, are rated Baa3 by Moody's and BBB-minus by Standard & Poor's.

The Alabama Public School and College Authority competitively sold $49.5 million of capital improvement bonds to Morgan Keegan & Co. with a TIC of 4.07%. The bonds mature from 2009 through 2025, with a term bond in 2028. None of the bonds were formally re-offered. The bonds, which are callable at par in 2018, are rated Aa2 by Moody's and AA by Standard & Poor's.

Finally, Boca Raton, Fla., competitively sold $39.5 million of water and sewer revenue refunding and improvement bonds to Harris NA with a TIC of 3.71%. The bonds mature from 2009 through 2027, with yields ranging from 2.10% with a 4% coupon in 2009 to 4.40% with a 4.375% coupon in 2027. The bonds, which are callable at par in 2017, and are rated Aa1 by Moody's and AAA by Standard & Poor's. q

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