The municipal market was weaker yesterday, following Treasuries, which dipped after the durable goods report came in much stronger than expected and as the Federal Open Market Committee met ahead of a decision today on the immediate direction of its target rate.

Traders said tax-exempt yields were higher by about three to five basis points.

“We’re definitely seeing some weakness,” a trader in New York said. “Treasuries weakened on the data, and we went down on the Treasury weakness. Couple that with the uncertainty surrounding the Fed, and you have yourself a weaker day.”

Trading activity, as reported by the Municipal Securities Rulemaking Board, was light yesterday.

“A lot of people were on the sidelines, ahead of the Fed decision,” a trader in Los Angeles said. “There wasn’t a whole lot of trading in the secondary.”

The Fed’s meeting will conclude today, as the FOMC determines whether or not it wishes to follow up on its 75-basis-point emergency slashing of the federal funds rate target this week, which dropped it to 3.50%.

In economic data released yesterday, durable goods orders rose 5.2% in December after a revised 0.5% increase the previous month. Additionally, durable goods orders excluding transportation rose 2.6% in December after a revised 0.4% dip the prior month. Economists polled by IFR Markets had predicted a 1.6% uptick in durable goods orders and no change in durable goods orders excluding transportation.

Also, the consumer confidence index fell to 87.9 in January, after a 90.6 level the previous month. Economists polled by IRR had predicted an 87.5 level for the index.

The Treasury market showed losses yesterday. The yield on the benchmark 10-year Treasury note, which opened at 3.58%, finished at 3.67%. The yield on the two-year note was quoted near the end of the session at 2.27%, after opening at 2.20%.

In the new-issue market yesterday, the Las Vegas Valley Water District competitively sold about $365 million of limited-tax general obligation bonds in two series. The larger series, worth $192.6 million, was sold to Merrill Lynch & Co. at a true interest cost of 4.497%. The bonds mature from 2009 through 2038. Yields range from 2009 through 2038, with yields ranging from 2.25% with a 5% coupon in 2010 to 4.22% with a 5% coupon in 2025. Bonds maturing in 2009, 2012, 2018, 2019, and from 2026 through 2028 were not formally re-offered.

The smaller series, worth $172.8 million, was also bought by Merrill at a TIC of 3.92%. The bonds mature from 2009 through 2026, with yields ranging from 1.99% with a 3.5% coupon in 2009 to 4.27% with a 4.25% coupon in 2023. Bonds maturing from 2024 through 2026 were not formally re-offered. All bonds will be callable at par in 2018. The bonds are rated Aa1 by Moody’s Investors Service and AA-plus by Standard & Poor’s.

Banc of America Securities LLC priced $125.7 million of lease revenue bonds for California’s Santa Clara County Financing Authority. The bonds mature from 2009 through 2011, 2014 through 2022, with yields ranging from 2.15% with a 3% coupon in 2009 to 4.23% with a 5% coupon in 2022. The bonds, which are callable at par in 2018, are rated Aa3 by Moody’s and AA by Standard & Poor’s.

Anchorage competitively sold $95 million of GO tax anticipation notes to JPMorgan with a net interest cost of 1.91%. The Tans mature in December 2008, yielding 1.90% with a 2.5% coupon. The credit is rated SP-1-plus by Standard & Poor’s.

Independent School District No. 709 in Duluth, Minn., competitively sold $59.2 million of GO alternative facilities bonds to UBS Securities LLC with a TIC of 4.13%. The bonds mature from 2009 through 2028, with yields ranging from 2.02% with a 3.5% coupon in 2009 to 4.12% with a 4.25% coupon in 2023. Bonds maturing in 2020 and from 2024 through 2028 were not formally re-offered. 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.

RBC Capital Markets priced $38.7 million of general receipt bonds for the University of Cincinnati. The bonds mature from 2013 through 2027 with a term bond in 2031. Yields range from 2.23% with a 3% coupon in 2010 to 4.48% with a 5% coupon in 2031. The bonds, which are callable at par in 2018, are insured by FSA. The underlying credit is rated A2 by Moody’s and A-plus by Standard & Poor’s.

In other economic data set for release later this week, eagerly awaited are January non-farm payrolls due Friday. The advance fourth-quarter gross domestic product reading will be released today, while initial jobless claims for the week ended Jan. 26, continuing jobless claims for the week ended Jan. 19, December personal income, December personal consumption, the December core personal consumption expenditures deflator, and the January Chicago purchasing managers index will be released tomorrow. Then on Friday, in addition to non-farm payrolls, the January Institute for Supply Management business activity composite index will be released along with the final January University of Michigan consumer sentiment index.

Economists polled by IFR Markets are predicting 58,000 new jobs were created in January. They are also predicting 1.2% growth in GDP, 318,000 initial jobless claims, 2.675 million continuing jobless claims, a 0.4% uptick in personal income, a 0.1% increase in personal consumption, 2.2% growth in the core PCE deflator, a 52.0 Chicago PMI reading, a 47.0 reading in the ISM index, and a 79.0 consumer sentiment reading.


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