The municipal market was mixed yesterday, and a $6.4 billion competitive Texas note sale came to market.

Traders said tax-exempt yields are posting some gains on the short end, but some losses on the long end.

"It's spotty, but if you have super clean paper with the right name, it's probably up a basis point or two," a trader in New Jersey said.

"It feels a little bit heavier right now. There are some sellers in the market," a trader in Chicago added.

The Treasury market was mixed yesterday. The yield on the benchmark 10-year Treasury note, which opened at 3.81%, finished at 3.83%. The yield on the two-year note was quoted near the end of the session at 2.30% after opening at 2.34%. The yield on the 30-year Treasury finished at 4.47% after opening at 4.44%.

In the new-issue market yesterday, Texas competitively sold $6.4 billion of tax and revenue anticipation notes to various bidders. This is the state's largest deal since it sold $6.6 billion in 2004.

Citi won the largest chunk of the deal, worth $1.05 billion, with a net interest cost of 1.645% billion. The deal was split into 25 pieces, with eight different underwriters taking home bonds. In addition to the $1.05 billion piece, Citi also grabbed a $205 million chunk, with a NIC of 1.655%.

Lehman Brothers bought the most pieces of the deal, at seven, worth $400 million, with NICs ranging from 1.608% to 1.657%. JPMorgan won the largest amount of bonds, totaling $2.85 billion over four pieces, with NICs ranging from 1.631% to 1.66%. Banc of America Securities LLC and Morgan Stanley each also had four pieces, worth $610 million and $740 million, respectively. Banc of America's NICs range from 1.635% to 1.66%, while Morgan Stanley's range from 1.636% to 1.655%.

Rounding out the syndicate, Goldman, Sachs & Co. also took home multiple series - two - totaling $375 million, with NICs of 1.641% and 1.646%. And Wachovia Bank NA and Depfa First Albany Securities LLC each won a single piece, worth $100 million with a 1.656% NIC and $70 million with a 1.646% NIC, respectively.

Due to the state's strong economy marked by rising employment and increasing sales taxes, it has garnered top ratings from all three major rating agencies - MIG-1 by Moody's Investors Service, SP-1-plus by Standard & Poor's, and F1-plus by Fitch Ratings.

In other activity, Goldman Sachs priced $345 million of transportation system bonds for the New Jersey Transportation Trust Fund Authority in five series. The deal is converting 2003 Series B auction-rate securities into fixed-rate paper.

Bonds from the $85 million Series B-1 mature in 2016 and 2017, yielding 3.90% with a 3.5% coupon and 4.05% with a 5% coupon, respectively. Bonds from the $85 million Series B-2 mature from 2016 through 2018, with yields ranging from 3.90% with a 5% coupon in 2016 to 4.14% with a 4% coupon in 2018. Bonds from the $50 million Series B-3 mature in 2018, yielding 4.14% with a 5% coupon. Bonds from the $62.5 million Series B-4 mature in 2018 and 2019, yielding 4.14% with a 4% coupon and 4.29% with a 5.25% coupon, respectively. And bonds from the $62.5 million Series B-5 also mature in 2018 and 2019, yielding 4.14% with a 4% coupon and 4.29% with a 5.25% coupon, respectively.

None of the bonds are callable. The credit is rated A1 by Moody's, AA-minus by Standard & Poor's, and A-plus by Fitch.

Citi priced $317 million of hospital revenue refunding and improvement bonds for Jackson, Tenn. The bonds mature from 2009 through 2018, with term bonds in 2023, 2028, 2033, 2038, and 2041. Yields range from 2.60% with a 3.5% coupon in 2009 to 5.92% with a 5.75% coupon in 2041. The bonds, which are callable at par in 2018, are rated A1 by Moody's and A-plus by Standard & Poor's.

Wisconsin competitively sold $302.2 million of general obligation bonds to Merrill Lynch & Co., with a true interest cost of 4.30%. The bonds mature from 2010 through 2029, with yields ranging from 2.97% with a 4% coupon in 2013 to 4.45% with a 5% coupon in 2026. Bonds maturing from 2010 through 2012, in 2014, 2016, 2021, and 2023, and from 2027 through 2029 were not formally re-offered. The bonds, which are callable at par in 2018, are rated Aa3 by Moody's, AA by Standard & Poor's, and AA-minus by Fitch.

In economic data released yesterday, housing starts came in at 965,000 in July, after a revised 1.084 million the previous month. Economists polled by IFR Markets had predicted 950,000 housing starts.

Building permits came in at 937,000 in July, after a revised 1.138 million the prior month. Economists polled by IFR Markets had predicted 925,000 building permits.

The producer price index rose 1.2% in July, after a 1.8% uptick the previous month. Economists polled by IFR Markets had predicted a 0.5% increase in the PPI.

Also, the core PPI climbed 0.7% in July, after a 0.2% rise the prior month. Economists polled by IFR Markets had predicted a 0.2% uptick.

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