Municipal bonds were little changed in today's trading, but the real story came out of the new-issue market, where California was able to sell about 60% of its $4 billion offering of general obligation bonds to retail investors.

By the early afternoon, California's lead underwriter, Merrill Lynch, let it be known that the syndicate had sold $2.4 billion of GOs. While this did not spur any secondary market activity of note, it is a good sign for the week to come.

In terms of day-to-day total returns:

-- The high-grade, short end of the curve showed a total return of positive 0.06%, according to Municipal Market Advisors (MMA) data.

-- The high-grade, intermediate part of the curve showed a total return of positive 0.05%.

-- The high-grade, long end of the curve showed a total return of positive 0.07%.

The high-grade marketplace of bonds rated double-A or better was very lightly traded for a second straight trading session. Just like on Friday, participants are waiting to get a better sense of how retail is doing with these new issues. High-grade deals this week are on the back burner due to the large California offering, which is not considered a high-grade credit.

That being said, the entire market is tied to California because it is so large. Thus, its success in distributing bonds to retail should make for some positive follow-through trading as the week progresses.

In the non-investment grade sector of non-rated bonds or single-A and lower, trading was very sparse. Once again, it has become difficult to make broad statements about how the lower-rated credit spectrum traded, as it was very much mixed.

The California deal will continue to be the main topic of conversation all week. Participants noted that the deal was priced cheaper than it has been in the past. As one dealer put it today, "It's not about how rich or cheap the deal is -- it's just about what it takes to get retail interested."

California bonds maturing in 15 years yield 5.60% in today's order period. That is a tax-equivalent yield of over 10%. The result? The issuer was able to finish over half the offering in a single day. Look for it to be increased to as much as $6 billion.

Major deals priced today:

-- $4 billion general obligation bonds for California; A2/A/A; retail only.

-- $444 million lottery revenue bonds for the Oregon Dept. of Administration Services; Aa3/AAA/NR; retail only.

-- $362 million state clean water and drinking water revolving funds revenue bonds for the New York State Environmental Facilities Corp.; Aa1/AA/AA+; retail only.

-- $235 million system revenue bonds for the Metropolitan Washington Airports Authority; Berkshire Hathaway insures part of deal; underlying: Aa3/AA-/AA; retail only.

-- $167 million Prairie State Energy Campus Project revenue bonds for American Municipal Power -- Ohio Inc.; Assured Guaranty Corp.-insured; underlying: A1/A/A; retail and institutions.

The best performance has come in the 4- to 14-year range since Thursday. It was this same range that performed the worst during the month-long skid throughout mid-February and into March.

One Week Change in Municipal Yields,
by maturity (bps)
Municipal Market Advisors

Matthew Posner is a director with Municipal Market Advisors. Posner writes intraday research, data and commentary on the municipal market and heads up the firm's efforts in Washington, D.C., as an educator of policymakers on the tax-exempt securities market. Founded in 1995, MMA is the leading independent strategy, research and advisory firm in municipal bond industry.

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