The municipal market was largely unchanged yesterday as the Federal Open Market Committee held the federal funds rate target unchanged at its monetary policy-setting meeting.

Traders said the Fed's decision was in line with expectations, and had little effect on secondary market activity.

"It's a sleepy old afternoon, there's just nothing really going on in the secondary market," a trader in Chicago said. "There's some new-issue paper of some good size, they're putting that away. Everybody seems to be focusing on the new-issue product and the secondary is pretty lame at the moment."

"It's still quiet, but I think it's firmer if you have a good credit," a trader in New Jersey said. "Off the beaten path, it's a little bit more dicey. There's just becoming a bigger difference between legitimate high grade and everything else."

The FOMC opted to hold the federal funds rate target unchanged at 2%. The fed funds rate has been at 2% since the committee cut the rate 25 basis points to that level on April 30. Policy makers also left it unchanged on June 25.

"Economic activity expanded in the second quarter, partly reflecting growth in consumer spending and exports," the statement read. "However, labor markets have softened further and financial markets remain under considerable stress. Tight credit conditions, the ongoing housing contraction, and elevated energy prices are likely to weigh on economic growth over the next few quarters. Over time, the substantial easing of monetary policy, combined with ongoing measures to foster market liquidity, should help to promote moderate economic growth."

The Fed's decision was widely expected, but the statement accompanying it contained a number of "significant" statements, focusing on inflation, according to Daiwa Securities chief economist Mike Moran.

The FOMC said "inflation has been high," which hinted it was "uncomfortable with the inflation rate," Moran said. The Fed also said the "outlook for inflation remains highly uncertain" even though it expects it will moderate later this year and next year.

"In a sense, it's a little bit less hawkish than the previous one because last time they said upside risks [to inflation] had increased, and they're no longer saying that they've increased - in fact, they've probably eased off slightly in recent weeks - but they still are of significant concern to the Fed," Moran said.

In addition, the Fed dropped its statement that downside risks to growth had diminished, which "suggests they are a little bit more concerned about the growth outlook now than they were in June," he said.

Moran said he does not expect the Fed to change the federal funds rate target before the end of the year. "I think it's going to be on hold, and I don't think this statement is suggesting a change in either direction in the future," he said.

The Treasury market showed losses yesterday. The yield on the benchmark 10-year Treasury note, which opened at 3.96%, finished at 4.02%. The yield on the two-year note was quoted near the end of the session at 2.55% after opening at 2.53%. The yield on the 30-year Treasury finished at 4.64% after opening at 4.59%.

In economic data released yesterday, the Institute for Supply Management's non-manufacturing business activity composite index was 49.5 in July, up from 48.2 in June. Economists polled by IFR Markets had expected a 49.0 level.

Later this week, a slate of economic data will be released, starting tomorrow with initial jobless claims for the week ended Aug. 2 and continuing jobless claims for the week ended July 26. On Friday, June wholesale inventories and sales will be released.

Economists polled by IFR are predicting 430,000 initial claims, 3.225 million continuing claims, a 0.6% increase in wholesale inventories, and a 0.8% rise in wholesale sales.

In the new-issue market yesterday, JPMorgan concluded a three-day retail order period on $834 million of general obligation bonds for New York City in two series. Retail investors have placed orders for $384 million of bonds since Friday.

Bonds from the larger $800 million Series A mature from 2010 through 2029, with yields ranging from 2.23% with a 4% coupon in 2010 to 4.99% with a 4.875% coupon in 2029. Bonds maturing from 2024 through 2027 were not offered during the retail order period. Bonds from the smaller $33.5 million Series G mature from 2014 through 2026, with yields ranging from 3.56% with a 4% coupon in 2014 to 4.86% with a 4.75% coupon in 2026. All the bonds, which are callable at par in 2018, are rated Aa3 by Moody's Investors Service, AA by Standard & Poor's, and AA-minus by Fitch Ratings.

Siebert Brandford Shank & Co. priced $690.6 million of revenue notes for the Michigan Municipal Bond Authority in two series. Notes from the $197.5 million Series A-1 mature in August 2009, yielding 1.63% with a 3% coupon. Notes from the $493.1 million Series A-2 mature in August 2009, yielding 1.70% with a 3% coupon. The notes are rated SP-1-plus by Standard & Poor's.

JPMorgan also priced $243.9 million of revenue bonds for the Harris County, Tex., Cultural Education Facilities FinanceCorp. The bonds mature from 2012 through 2018, with yields ranging from 3.83% with a 5.25% coupon in 2012 to 4.75% with a 5.5% coupon in 2018. The bonds, which are not callable, are rated AA by Standard & Poor's.

Lehman Brothers priced $185 million of transportation revenue bonds for Wisconsin. The bonds mature from 2010 through 2019, with yields ranging from 2.33% with a 5% coupon in 2010 to 4.87% with a 5% coupon in 2029. The bonds, which are callable at par in 2018, are rated Aa3 by Moody's, AA-plus by Standard & Poor's, and AA by Fitch.

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