The municipal market was weaker yesterday, following the Treasury market, as investors returned from a three-day holiday weekend.

Traders said tax-exempt yields were higher by two or three basis points.

"The Street seems to be fairly busy right now. It's a little bit surprising for the day after a holiday. Usually people are kind of lull in and drag out the rest of the week, but it seems people came in to work, so that's good," a trader in New York said. "Bonds are cheaper, though. Hopefully something will loosen up here and things will improve, but you never know."

Some traders, however, saw less activity.

"It's really quiet, but potentially off a few basis points," a trader in New Jersey said. "It's a typical day after a long weekend. It's dead."

"Everybody has the 'after-the-long holiday-don't-want-to-do-anything' feeling," a trader in Los Angeles added. "People just want to absorb the economic news and take the day off."

Trades reported by the Municipal Securities Rulemaking Board yesterday showed losses. Bonds from an interdealer trade of insured Odessa, Tex., 5s of 2026 yielded 4.49%, up two basis points from where they were sold Friday. Bonds from an interdealer trade of Arizona's Salt Verde Financial Corp. 5s of 2037 yielded 5.73%, one basis point higher than where they traded Friday. A dealer sold to a customer Massachusetts Health and Educational Facilities Authority 5.125s of 2038 at 5.27%, two basis points higher than where they were traded Friday. Bonds from an interdealer trade of taxable Connecticut 5.85s of 2032 yielded 5.42%, up two basis points from where they traded Friday.

The Treasury market showed losses yesterday. The yield on the benchmark 10-year Treasury note, which opened at 3.85%, finished at 3.93%. The yield on the two-year note was quoted near the end of the session at 2.52% after opening at 2.43%.

"Investors moved into Treasuries in advance of the long weekend, leading to selling," said Matthew Moore, chief Treasury and agency strategist at Banc of America Securities LLC. "The market is still looking for direction."

In economic data released yesterday, sales of new single-family homes gained 3.3% to a 526,000 seasonally adjusted annual rate in April. The figure came after a downwardly revised 509,000 rate in March, an 11.0% drop. IFR Markets' poll of economists had predicted a 522,000 sales level for April.

The consumer confidence index declined again in May, dropping to 57.2 from an upwardly revised 62.8 last month. The April index reading was originally reported as 62.3. Economists polled by IFR predicted the index would slip to 60.0.

The arrival of a billion-dollar deal from Florida along with large utility offerings this week will keep the primary market busy despite the abbreviated trading in observance of Memorial Day. However, new-issue volume for the last week of May won't be much higher than it was for the beginning of the month.

In the first full week of May, the primary market saw $6.5 billion of new volume, according to Thomson Reuters. This week, at the end of the month, an estimated $6.58 billion of new-issue volume is expected, compared with a revised $7.71 billion last week.

The Citizens Property InsuranceCorp. in Florida will issue the largest deal of the week when it sells at least $1.5 billion of senior-secured bonds. Goldman, Sachs & Co. will price the sale tomorrow, following a retail order period today. The bonds will be structured on the short end of the market with maturities available in 2011, 2012, and 2013. Part of the deal will be insured by Financial Security Assurance Inc., although other insurers are being considered. The bonds have underlying rating of A2 from Moody's Investors Service and A-plus from Standard & Poor's.

In the new-issue market yesterday, RBC Capital Markets priced $57.2 million of unlimited-tax school building and refunding bonds for Texas' Northwest Independent School District. The bonds mature from 2016 through 2029, with a term bond in 2033. Yields range from 3.50% with a 4% coupon in 2016 to 4.60% with a 5% coupon in 2033. The bonds, which are callable at par in 2017, are backed by the state's Permanent School Fund triple-A guarantee program. The deal also contains capital appreciation bonds that mature from 2009 through 2025. The underlying credit is rated A1 by Moody's and AA-minus by Fitch Ratings.

A slate of economic data will be released during this holiday-shortened week, continuing today with the release of the April durable goods report. On tap tomorrow are the preliminary first-quarter gross domestic product reading, initial jobless claims for the week ended May 24, and continuing jobless claims for the week ended May 17. On Friday, April personal income, April personal consumption, the April core personal consumption expenditures deflator, the May Chicago purchasing managers index, and the final May University of Michigan consumer sentiment index are slated to be released.

Economists polled by IFR Markets are predicting a 1.1% decline in durable goods orders, a 0.7% dip in durable goods orders excluding transportation, 1.0% growth in GDP, 370,000 initial jobless claims, 3.085 million continuing jobless claims, a 0.2% rise in personal income, a 0.2% increase in personal consumption, a 0.1% uptick in the core PCE deflator, a 48.5 reading for the Chicago PMI, and a 59.5 reading for the Michigan sentiment index.

Jack Herman contributed to this column.

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