Fall continues, deals postponed; activity slows, stability sought.

Municipals unraveled for the third day in a row yesterday as prices dropped 1/2 to as much as one point, but activity was less frenetic.

Tax exempts have suffered losses of nearly four points over the last three session's as oversupply and a weakening dollar pounded the credit markets.

The Treasury market held its ground early yesterday as the value of the dollar stabilized.

As a result, the tax-free market paused from its swift fall, clinging to the stronger government market, and traders were hopeful that prices would stabilize and build a bottom.

But the Treasury market weakened after results of its $15 billion two-year note sale, sending a new shock wave through municipals and prices resumed their downward slide.

The market's losses were exacerbated by the scarcity of investors and by session's end, prices were quoted down 1/2 point to as much as one point, depending upon the name, traders said. Bids for bonds were weak and scarce as market players scrambled to the sidelines.

In the debt futures market, the September municipal futures contract settled down 9/32, to 95.26. The MOB spread was calculated at negative 274.

Market players were wary at the end of the session and were worried that the market would continue to lose ground. However, some noted that buyers will soon emerge to buoy the market.

John J. O'Brien, president of O'Brien Partners Inc., a financial adviser based in New York, said that although supply-strapped dealers may face more losses, the market is overextending on the downside, just as it did on the upside, and that prices are likely to soon stabilize as supply eases.

"When the markets rallied into July the [yields] seemed very reasonable, but then it just kept going higher," he said. "When rates got low, supply grew dramatically and the market got into trouble. It's a technical backup, but markets tend to swing like a pendulum. It will get overdone on the downside and then rates will get realistic, and we will get back on track."

Forward supply has moved lower and The Bond Buyer's 30-day visible supply fell to $4.68 billion yesterday, but The Blue List rose to $1.82 billion, indicating that dealers still hold supply.

New Issues

New-issue activity yesterday was moderate, dominated by competitive sales.

Leading the way, $126 million of Charlotte, N.C., unlimited tax refunding bonds were won by a First Boston Corp. group with a true interest cost of 5.2872%.

Near the end of the day, the firm reported an unsold balance of approximately $84.9 million.

Serial bonds were reoffered to investors at yields ranging from 2.60% in 1993 to 5.55% in 2004.

The issue is rated triple-A by Moody's and Standard & Poor's.

In other action, $61 million Texas Public Finance Authority general obligation bonds were by Merrill Lynch group with a TIC of 6.0142%.

Serial bonds were priced to yield from 3% in 1993 to 6.35% in 2012.

The issue is rated double-A by Moody's and Standard & Poor's Corp.

Secondary Trading

Activity was muted again yesterday as dealers retreated to the safe haven of inactivity and bids were scarce.

In secondary dollar bond trading, Clark County, Nev., Airport 6s of 2022 were quoted late in the session at 93 3/4-94 1/2, to yield 6.47% on the bid side; Puerto Rico GO 6s of 2014 were quoted at 93 7/8-94, to yield 6.52%; and Florida State Board of Education 6s of 2022 were quoted at 94 3/4-95 1/2, to yield 6.39%. Los Angeles Department of Water and Power 6s of 2032 were quoted at 93 3/4-94 1/4, to yield 6.43% and New York City Water Authority 6s of 2017 were quoted at 92-1/2, to yield 6.66%.

In the short-term note sector, yields were as much as 10 basis points higher, traders said.

In late trading, Los Angeles Trans were quoted at 3.05% bid, 3% offered; Texas Trans were quoted at 3.15% bid, 3.10 offered; and Wisconsin notes were quoted at 3.15% bid, 3.10% offered. New York City Tans were quoted at 3% bid, 2.95% offered and New York State Trans were quoted at 3.25% bid, 3.20 offered.

Delayed Deals

Several more deals were postponed due to the weakness in the market, easing some supply pressure.

A representative of Bear, Stearns & Co. said yesterday that an issue of $357 million Connecticut special tax obligation bonds will be sold today.

The offering had been scheduled to be priced yesterday, but the official said the state hoped for "a somewhat more stable market" today.

The official also said the issue had bee downsized to exclude the entire refunding portion of the loan.

"The offering will still be done with the lowest true interest cost in the history of the program," and official said. "The market is just too erratic to offer the refunding bonds right now."

The offering is part of a 10-year program designed to repair and upgrade the infrastructure in Connecticut. The program has been in effect since the 1983 collapse of the Mianus River Bridge.

Merrill Lynch & Co. announced the postponement of $72 million of Vermont general obligation refunding bonds and the sale will be placed on a "day-to-day" basis, officials with the firm said yesterday.

Also citing market conditions, Cumberland Securities Co. announced the postponement of $38 million of Knox County, Tenn., hospital revenue refunding bonds for the the Health and Educational Housing Facilities Board.

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