The municipal market was slightly weaker yesterday.

"We're following Treasuries, which are seeing quite a bit of a sell-off," a trader in New York said. "We're lagging behind, but I'd say we're weaker by about two or three basis points."

The Treasury market showed losses yesterday. The yield on the benchmark 10-year Treasury note, which opened at 3.41%, finished at 3.56%. The yield on the two-year note was quoted near the end of the session at 1.81% after opening at 1.59%.

"The Treasury market really set the tone for us," a trader in San Francisco said. "We've disengaged from Treasuries a bit in recent months, but [yesterday], munis were definitely weaker because of what was going on in that market. We were about three or so basis points lower in yield, but Treasuries were off more than half a point."

In economic data released yesterday, spending on construction projects fell 0.3% to a seasonally adjusted annual rate of $1.122 trillion in February as private construction decreased 0.5%, and public construction grew 0.4%. The overall decrease, which was smaller than the 1.1% decrease projected by IFR Markets, followed a revised January decrease of 1.0% to a level of $1.125 trillion.

Meanwhile, the overall economy grew for the 77th straight month, while the manufacturing sector remained in contraction for the second month, according to the Institute for Supply Management's monthly report on business. The ISM index increased to 48.6 in March from 48.3 in February. Economists polled by IFR predicted the index would slip to 48.0.

Later this week, a slate of economic data will be released, with Friday's March nonfarm payrolls report at the forefront. In other data, factory orders for February will be released Wednesday, followed by initial jobless claims for the week ended March 29, continuing jobless claims for the week ended March 22, and the March ISM non-manufacturing index tomorrow.

Economists polled by IFR are predicting that 50,000 jobs were lost in March. They are also forecasting a 0.6% drop in factory orders, a 0.3% rise in factory orders excluding transportation, 366,000 initial jobless claims, 2.860 million continuing jobless claims, and a 49.0 reading for the ISM non-manufacturing index.

In the new-issue market yesterday, the Virginia Housing Development Authority competitively sold $220 million of bonds, subject to the alternative minimum tax, to Lehman Brothers, at a true interest cost of 5.26%. The bonds mature from 2009 through 2021, with term bonds in 2026 and 2035. The bonds are callable at par in 2017, and are rated triple-A by all three major rating agencies.

Siebert, Brandford, Shank & Co. priced $120.2 million of lease revenue bonds for the Alameda County, Calif., Joint Powers Authority. The bonds mature from 2016 through 2027, with a term bond in 2034. Yields range from 3.55% with a 5% coupon in 2016 to 5.12% with a 5% coupon in 2034. The bonds, which are callable at par in 2017, are insured by Financial Security Assurance Inc. The underlying credit is rated A2 by Moody's Investors Service, AA-minus by Standard & Poor's, and A by Fitch Ratings.

Merrill Lynch & Co. priced $116.8 million of second-lien sales tax revenue bonds for Hennepin County, Minn. The bonds mature from 2008 through 2029 with yields ranging from 2.00% with a 3.5% coupon in 2008 to 4.93% with a 5% coupon in 2029. The bonds, which are callable at par in 2017, are rated Aa3 by Moody's, AA-plus by Standard & Poor's, and AA by Fitch.

Lehman also priced $86.1 million of bonds for Pennsylvania State University in two series. Bonds from the $77.8 million series A mature from 2017 through 2029, with yields ranging from 3.77% with a 5% coupon in 2017 to 4.89% with a 5% coupon in 2029. Bonds from the $8.3 million series B mature from 2008 through 2016, with yields ranging from 2.00% with a 3% coupon in 2008 to 3.60% with a 3.75% coupon in 2016. Series A bonds are callable at par in 2018. Series B bonds are not callable. The credit is rated Aa2 by Moody's and AA by Standard & Poor's.

RBC Capital Markets priced $74 million of unlimited tax school building bonds for Texas' Judson Independent School District. The bonds mature in 2009, and from 2011 through 2028, with term bonds in 2032 and 2037. Yields range from 2.25% with a 4% coupon in 2009 to 5.14% with a 5% coupon in 2037. The bonds, which are callable at par in 2017, are insured by Assured Guaranty Corp. The underlying credit is rated A1 by Moody's and A-plus by Fitch.

Leading the new-issue market today, Morgan Stanley Wednesday will price $617 million of school facilities construction bonds for the New Jersey Economic Development Authority. The deal will convert auction-rate securities to fixed-rate bonds with puts.

The EDA last sold school facilities construction bonds in Sept. 2007. Bear, Stearns & Co. priced that $300 million transaction, with bonds maturing from 2009 through 2027, with term bonds in 2032 and 2037. Yields range from 3.48% with a 4% coupon in 2009 to 4.64% with a 5% coupon in 2037. Bonds maturing from 2009 through 2032 are insured by Financial Security Assurance Inc. Some bonds maturing in 2037 are insured by Ambac Assurance Corp. Another set of bonds maturing in 2037 came uninsured.

Among 5% coupon paper in the deal, bonds maturing in 2032 were widest to that day's Municipal Market Data triple-A yield curve, with yields 18 basis points over the curve. Bonds maturing in 2037 were tightest to the scale, with yields seven basis points over.

 

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