The municipal market was mixed overall amid short-end gains and long-end losses, following Treasuries, which moved in divergent directions after a speech by Federal Reserve Board chairman Ben S. Bernanke warning that further cuts to the federal funds rate target may be necessary.

“We started the morning with more credit concerns, and strong flight to quality,” a trader in San Francisco said. “Every single article in the Wall Street Journal was bad news for all. Then the Bernanke testimony signaled strong rate cuts for the Fed and inflationary pressures on the long end.”

“Munis inside of 10 years are firm, on an absence of paper,” the trader added. “I think the [Municipal Market Data] changes came a little early [yesterday] to capture what’s really going on. They quoted four on the long end and we could easily be down more than that. I think we’re down at least five there, and you can still name your price inside of 10 years.”

The Treasury market was mixed yesterday, seeing some gains on the short end, while maintaining losses on the long end, following Bernanke’s speech on the economy and monetary policy yesterday.

“In light of recent changes in the outlook for and the risks to growth, additional policy easing may well be necessary,” Bernanke said in a speech before the Women in Housing and Finance and Exchequer Club Joint Luncheon, according to text released by the Fed. “The committee will, of course, be carefully evaluating incoming information bearing on the economic outlook. Based on that evaluation, and consistent with our dual mandate, we stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks.”

Bernanke noted that changing conditions will determine monetary policy changes. “Financial and economic conditions can change quickly,” he said. “Consequently, the committee must remain exceptionally alert and flexible, prepared to act in a decisive and timely manner and, in particular, to counter any adverse dynamics that might threaten economic or financial stability.”

The yield on the benchmark 10-year Treasury note, which opened at 3.82%, finished at 3.90%. The yield on the two-year note was quoted near the end of the session at 2.71% after opening at 2.71%.

In economic data released yesterday, initial jobless claims for the week ended Jan. 5 came in at 322,000, after a revised 337,000 the previous week. Additionally, continuing jobless claims came in at 2.702 million the week ended Dec. 29 after a revised 2.754 million the week before. Economists polled by IFR Markets had predicted 340,000 initial claims and 2.750 million continuing claims.

Meanwhile, wholesale inventories rose 0.6% and wholesale sales climbed 2.2% in November. This followed no change in inventories and a revised 1.4% increase in sales in October. Economists polled by IFR Markets had predicted 0.3% climbs in inventories and sales.

In the new-issue market yesterday, the Texas A&M University Board of Regents competitively sold $169.5 million of revenue financing system bonds to Citi with a true interest cost of 4.17%. The bonds mature from 2008 through 2027, with term bonds in 2033 and 2037. Yields range from 2.80% with a 4.75% coupon in 2010 to 3.85% with a 5% coupon in 2023. Bonds maturing in 2008, 2009, 2011 through 2015, 2017 through 2020, 2024 through 2027, 2033, and 2037 were not formally reoffered. The bonds are callable at par in 2018. The bonds are rated Aa1 by Moody’s Investors Service and AA-plus by Standard & Poor’s.

New Hampshire competitively sold $75 million of general obligation capital improvement bonds to Robert W. Baird & Co. with a TIC of 3.68%. The bonds mature from 2009 through 2027, with yields ranging from 2.68% with a 3.5% coupon in 2009 to 4.15% with a 4% coupon in 2027. The bonds, which are callable at par in 2018, are rated Aa2 by Moody’s, and AA by Standard & Poor’s and Fitch Ratings.

Wachovia Bank NA priced $52.8 million of enterprise system revenue bonds for Brunswick, N.C. The bonds mature from 2009 through 2027 with term bonds in 2031. Yields range from 2.78% with a 4% coupon in 2009 to 4.20% with a 5% coupon in 2031. The bonds, which are callable at par in 2018, are insured by Financial Security Assurance Inc. The underlying credit is rated A2 by Moody’s and A-plus by Standard & Poor’s and Fitch.

Morgan Stanley priced $28 million of GOs for the Chicago Park District in four series. Bonds from the largest series, $8.3 million of unlimited-tax refunding bonds, mature from 2010 through 2025, with yields ranging from 2.84% with a 3.5% coupon in 2010 to 4.27% with a 4.25% coupon in 2025. These bonds are callable at par in 2018. Bonds from the second largest series, $7.4 million of limited-tax refunding bonds, mature from 2009 through 2016, with yields ranging from 2.80% with a 3.5% coupon in 2009 to 3.44% with a 5% coupon in 2016. The bonds are not callable.

Bonds from the next largest series, $6.7 million of unlimited-tax refunding bonds, mature from 2009 through 2013, with yields ranging from 2.80% with a 3.5% coupon in 2009 to 3.14% with a 5% coupon in 2013. The bonds are not callable. And bonds from the smallest series, $5.6 million of unlimited-tax refunding bonds, mature from 2009 through 2014, with yields ranging from 2.80% with a 3.5% coupon to 3.23% with a 3.5% coupon in 2014. The bonds are also not callable. The credit is rated Aa3 by Moody’s, AA by Standard & Poor’s, and AA-plus by Fitch.


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