Munis Weaker as Uncertainties Drag On

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Municipals were weaker again yesterday as market uncertainties dragged on, buyers continued to sit on the sidelines, and Illinois postponed till Tuesday its sale of $1.4 billion general obligation certificates.

Traders said tax-exempt yields were higher by about two basis points overall, with yields higher by as much as four basis points on the long end.

"It's just very hard to get anyone interested right now," a trader in New York said. "It's more of the same today, with the munis down a couple basis points, more so on the long end, and not a whole lot of activity in the secondary. Something is going to have to change in the muni landscape for this to really change in the absolute immediate future. Right now, I'm thinking we'll see this weakness continue at least another week, until we get to the point where the holidays are upon us and no one is bringing deals to market in the primary."

Trades reported by the Municipal Securities Rulemaking Board yesterday showed losses. A dealer sold to a customer California 5.25s of 2036 at 6.90%, up two basis points from where they were sold Wednesday. A dealer bought from a customer insured Massachusetts 5.5s of 2030 at 5.76%, five basis points where than where they traded Wednesday. Bonds from an interdealer trade of New York City Housing Development Corp. 4.6s of 2026 yielded 7.41%, three basis points higher than where they were sold Wednesday. A dealer sold to a customer Indiana Finance Authority 3.5s of 2028 at 6.60%, up two basis points from where they traded Wednesday.

"It's a tough time and a tough market, with no one really anxious to do anything and bonds getting seemingly cheaper and cheaper every day," a trader in Los Angeles said. "It's really hard to get things done."

The Treasury market, however, showed some gains yesterday. The yield on the benchmark 10-year Treasury note, which opened at 2.68%, was quoted near the end of the session at 2.60%. The yield on the two-year note was quoted near the end of the session at 0.78% after opening at 0.85%. And the yield on the 30-year bond, which opened at 3.09%, was quoted near the end of the session at 3.05%.

The Treasury Department also auctioned $16 billion of 10-year notes, with a 2 3/4% coupon at a 2.670% high yield, a price of about 109.35. The bid-to-cover ratio was 2.44. Federal Reserve banks bought $480.8 million for their own account in exchange for maturing securities.

In the new-issue market, Illinois late Wednesday notified investors of a delay until Tuesday of its sale of $1.4 billion of GO certificates that were scheduled for yesterday.

The state is issuing the certificates to speed up payment on a backlog of $4 billion of unpaid bills held by the state comptroller's office. The delay comes as calls continue to mount for Gov. Rod Blagojevich to resign from office following his arrest on Tuesday on federal corruption charges.

Sources familiar with the transaction said the delay was not driven by market concerns or worries that it would fail to attract investors, but that final authorization was still needed on some documents from the offices of the state attorney general, comptroller, and treasurer.

Yesterday, Standard & Poor's placed Illinois on negative CreditWatch. The agency rates the credit AA, as does Fitch Ratings, while Moody's Investors Service rates it Aa3.

Colorado competitively sold $300 million of education loan program tax and revenue anticipation notes to Citi with a true interest cost of 0.97%. The Trans mature in Aug. 2009, yielding 0.97% with a 1% coupon. The credit is rated SP-1-plus by Standard & Poor's and F1-plus by Fitch Ratings.

Morgan Stanley priced $158 million of electric and gas systems revenue refunding bonds for San Antonio. The bonds mature from 2010 through 2016, with yields ranging from 2.20% with a 5.5% coupon in 2010 to 4.14% with a 5.5% coupon in 2016. The bonds, which are not callable, are rated Aa1 by Moody's, AA by Standard & Poor's, and AA-plus by Fitch.

Miami-Dade County competitively sold $146.2 million of GOs to Barclays Capital with a TIC of 5.96%. The bonds mature from 2009 through 2026, with a term bond in 2028. Yields range from 3.15% with a 5% coupon in 2011 to 6.31% with a 6.25% coupon in 2026. Bonds maturing in 2009, 2010, from 2016 through 2018, and in 2023 and 2028 were not formally re-offered. The bonds, which are callable at par in 2018, are rated Aa3 by Moody's and AA-minus by Standard & Poor's.

Merrill Lynch & Co. priced $125 million of bond anticipation notes for Nassau County, N.Y. The Bans mature in Oct. 2009, yielding 1.25% with a 2.5% coupon. The credit is rated MIG-1 by Moody's, SP-1-plus by Standard & Poor's, and F1-plus by Fitch.

In economic data released yesterday, initial jobless claims for the week ended Dec. 6 came in at 573,000, after a revised 515,000 the previous week. Economists polled by Thomson Reuters had predicted 525,000 initial jobless claims.

Continuing jobless claims for the week ended Nov. 29 came in at 4.429 million, after a revised 4.091 million the previous week. Economists polled by Thomson Reuters had predicted 4.1000 million continuing jobless claims.

Also, import prices fell 6.7% in November, after a revised 5.4% drop the previous month. Economists polled by Thomson had predicted a 4.9% decline.

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