Yields Higher; San Antonio Offering Sells

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Yields in the tax-exempt market edged slightly higher again yesterday, while one of the week's largest scheduled transactions was priced in the new-issue market.

Merrill Lynch & Co. priced $440.8 million of electric and gas systems revenue refunding bonds for San Antonio. The bonds mature from 2015 through 2031, with a term bond in 2034. Yields range from 2.78% with a 3.25% coupon in 2015 to 5.20% with a 5% coupon in 2034. The bonds, which are callable at par in 2019, are rated Aa1 by Moody's Investors Service, AA by Standard & Poor's, and AA-plus by Fitch Ratings.

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

"My thoughts are, it's probably two or three basis points weaker," a trader in New York said. "Clearly, I think the damage is greater on the front end, where there is no yield, but it's still a little weaker across the board."

"It's slow. There's a lot of bid-wanteds in the Street, but not a lot happening," a trader in Los Angeles said. "I bid on a bunch of bonds, but nothing traded. It's been a very frustrating day. Nobody has really cut and run yet. High-grades continue to get really good treatment. Quality names are still drawing big numbers, but if it's not pristine, nobody wants it."

Trades reported by the Municipal Securities Rulemaking Board yesterday showed losses. A dealer sold to a customer California 5.25s of 2025 at 5.43%, up two basis points from where they traded Wednesday. A dealer sold to a customer North Carolina 4.25s of 2024 at 3.94%, two basis points higher than where they were sold Wednesday. Bonds from an interdealer trade of Port Authority of New York and New Jersey 5s of 2026 yielded 5.50%, up three basis points from where they traded Wednesday. Bonds from an interdealer trade of New York's Triborough Bridge and Tunnel Authority 5s of 2029 yielded 4.84%, two basis points higher than where they were sold Wednesday,

"Feels like an echo from every other day this week, but bonds are a bit cheaper, probably about two or three basis points overall," a second trader in New York said. "There's not too much going on, we're just down a little bit again."

The Treasury market showed losses yesterday. The yield on the benchmark 10-year note, which opened at 2.92%, was quoted near the end of the session at 3.02%.The yield on the two-year note was quoted near the end of the session at 1.10% after opening at 1.07%. The yield on the 30-year bond, which opened at 3.58%, was quoted near the end of the session at 3.68%.

As of Wednesday's close, 10-year tax-exempt bonds were trading at 104.1% of comparable Treasuries, according to Municipal Market Data. Additionally, 30-year munis were trading at 134.0% of comparable Treasuries.

Elsewhere in the new-issue market yesterday, Merrill Lynch priced $199.4 million of water refunding and improvement revenue bonds for Kansas City, Mo. The bonds mature from 2009 through 2024, with term bonds in 2028 and 2032. Yields range from 0.94% with a 2% coupon in 2009 to 5.24% with a 5.25% coupon in 2032. Bonds maturing from 2015 through 2028 were insured by Berkshire Hathaway Assurance Corp. All remaining bonds are uninsured. The underlying credit is rated A1 by Moody's and AA-plus by Standard & Poor's.

The Palm Beach County, Fla., School District competitively sold $73 million of revenue anticipation notes to JPMorgan with a net interest cost of 0.65%. The Rans mature in 2010, with a 0.85% coupon. None of the Rans were formally re-offered. The credit is rated MIG-1 by Moody's, SP-1-plus by Standard & Poor's, and F1-plus by Fitch.

RBC Capital Markets priced $65 million of general obligation bonds for California's Rio Hondo Community College District. The bonds mature from 2011 through 2026, with term bonds in 2030. Yields range from 1.72% with a 3% coupon in 2011 to 5.21% with a 5.5% coupon in 2030. The bonds are callable at par in 2019. Bonds maturing in 2025 are insured by Assured Guaranty Corp. The underlying credit is rated Aa3 by Moody's and AA by Standard & Poor's.

In economic data released yesterday, initial jobless claims for the week ended Feb. 21 came in at 667,000 after a revised 631,000 the previous week. Economists polled by Thomson Reuters had predicted 625,000 initial jobless claims.

Continuing jobless claims for the week ended Feb. 14 came in at 5.112 million after a revised 4.998 million the previous week. Economists polled by Thomson had predicted 5.000 million continuing jobless claims.

Durable goods ordered dropped 5.2% in January after a revised 4.6% decline the previous month. Economists polled by Thomson Reuters had predicted a 2.5% decrease.

Excluding transportation, durable goods ordered dipped 2.5% in January after a 3.2% drop the previous month. Economists polled by Thomson had predicted a 2.1% decline.

New home sales came in at 309,000 in January, down from 331,000 the previous month. Economists polled by Thomson had predicted 330,000. Continuing jobless claims for the week ended Feb. 14 came in at 5.112 million after a revised 4.998 million the previous week. Economists polled by Thomson Reuters had predicted 5.000 million continuing jobless claims.

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