The municipal market was weaker yesterday, following Treasuries, as market participants eased their way back from a three-day weekend.

Traders said tax-exempt yields were higher by three to five basis points overall, but one-year yields rose dramatically, reversing the tremendous gains experienced by such paper over the past couple of weeks.

"One-year paper had been sort of the safe-haven bid for a while, but we're definitely seeing a reversal of that now," a trader in Los Angeles said. "It could be as much as 20 basis points even on 2009 bonds. Overall though, the market is down at least three or four basis points, five in some spots."

Trades reported by the Municipal Securities Rulemaking Board yesterday showed some losses. Bonds from an interdealer trade of California 5s of 2035 yielded 5.06%, up three basis points from where they traded Friday. A dealer sold to a customer insured New Jersey Transportation Trust Fund Authority 4.75s of 2037 at 4.86%, up one basis point from where they were sold Friday. Bonds from an interdealer trade of New York 4.375s of 2027 yielded 4.67%, two basis points higher than where they traded Friday.

The Treasury market showed losses yesterday. The yield on the benchmark 10-year Treasury note, which opened at 3.77%, finished at 3.89%. The yield on the two-year note was quoted near the end of the session at 2.05%, after opening at 1.91%.

The economic calendar was light yesterday.

This week, however, will still see some significant data. Today, the January consumer price index will be released, as will January housing starts, and January building permits. Tomorrow initial jobless claims for the week ended Feb. 16 will be released along with the January composite index of leading economic indicators.

Economists polled by IFR Markets are predicting a 0.3% rise in CPI, a 0.2% gain in CPI core, 1.010 million housing starts, 1.040 million building permits, 348,000 initial claims, 2.775 million continuing claims, and a 0.1% dip in LEI.

This week, the market is expecting to see $1.22 billion of competitive new issues. The largest deal on the calendar will be a $385 million competitive offering today from the New York Local Government Assistance Corp. The bonds are rated Aa3 by Moody's Investors Service and AAA by Standard & Poor's, and are structured to mature from 2009 to 2021.

In a weekly report, Matt Fabian, managing director at Municipal Market Advisors wrote that this week "will very likely pack substantial volatility into four trading days."

"First, sweeping auction failures will reasonably continue as that market has never before functioned without dealer support and the gap in demand is difficult to supplement or replace quickly," he wrote. "Second, the risk of downgrades to [MBIA Insurance Corp.] and/or [Ambac Assurance Corp.] is very high absent the unlikely announcement of a rescue, bailout, or restructuring. Third, evaluations may yet again begin to catch up with benchmark curve movements. There is little primary calendar, and the data calendar is modest beyond the [Federal Open Market Committee] minutes release [today]."

In the new-issue market yesterday, Pasadena, Tex., competitively sold $55.4 million of waterworks and sewer system revenue bonds to Prager Sealy & Co. with a net interest cost of 4.87%. The bonds mature from 2010 through 2033, with yields ranging from 2.39% with a 5% coupon in 2010 to 4.40% with a 4.25% coupon in 2021. Bonds maturing from 2022 through 2033 were not formally re-offered. The bonds, which are callable at par in 2017, are insured by Assured Guaranty Corp. The underlying credit is rated A3 by Moody's, and A-minus by both Standard & Poor's and Fitch Ratings.

Citi priced $32.9 million of revenue anticipation certificates for Georgia's Carroll City-County Hospital Authority. The bonds mature from 2011 through 2023, with term bonds in 2028, 2033, and 2038. Yields range from 3.00% priced at par in 2011 to 5.05% with a 5% coupon in 2038. The bonds, which are callable at par in 2018, are insured by Assured Guaranty. The underlying credit is rated A1 by Moody's and A-plus by Standard & Poor's.

JPMorgan priced $29.1 million of tax and revenue certificates of obligation for Frisco, Tex. The paper matures from 2010 through 2029, with a term maturity in 2033. Yields range from 2.20% with a 3.25% coupon in 2010 to 4.93% with a 4.75% coupon in 2033. The paper, which is callable at par in 2018, is insured by Financial Security Assurance Inc. The underlying credit is rated Aa3 by Moody's and AA-minus by Standard & Poor's.

Nantucket, Mass., competitively sold $26.2 million of general obligation municipal purpose loan bonds to Citi, with a true interest cost of 3.68%. The bonds mature from 2009 through 2028, with yields ranging from 1.50% with a 5% coupon in 2009 to 4.45% with a 4.25% coupon in 2028. The bonds, which are callable at par in 2018, are rated Aa3 by Moody's.

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