Tax-free prices gain slightly as traders fret that top's here.

Municipals eked out small gains in sympathy with the Treasury market yesterday, but action was dull because of the approaching Labor Day holiday.

The market opened slightly weaker, with prices losing 1/8 point in spots as Friday's profit-taking atmosphere appeared ready to spread into yesterday's session.

Action was "limited and market players reported a nervous tone. Traders have greeted recent record low yields with consternation, and worry that the market would sell off. They typically dig in their heels until the bullish tone wins the tug-of-war before driving bonds to even loftier heights. The action early yesterday was indicative of this scenario.

"Everybody is afraid this is the top, but if you fight the technicals you're in trouble," one trader said. "If you're short, governments are killing you."

True to the recent trend, Treasury bonds edged higher after economic data continued to show a suffering economy, and the government futures contract pierced a key resistance level. Prices moved higher when sales of single-family homes fell 5.0% in July to a seasonally adjusted annual rate of 629,000 on decreases in all regions of the country.

The firm Treasury market lent some strength to municipals. By session's end, tax-exempt prices were quoted unchanged to V8 point higher on average.

In the debt futures market, the September contract settled up 2/32 to 104.10. The MOB spread widened to another record low, hitting negative 487 from negative 482 on Friday, as the municipal market continued to lag the Treasury market.

The Bond Buyer Municipal Bond Index rose 1/8 yesterday, to a record high 104.03, while the average yield to maturity of the 40 bonds in the index remained at a record low 5.61% for the third consecutive day.

New issuance was light yesterday, and should continue to be so, traders said.

The Bond Buyer calculated 30-day visible supply at $3.25 billion. The Blue List of dealer inventory fell $21 million, to $1.54 billion.

New Deals

In light new-issue action in the negotiated sector, Bear, Steams & Co. priced $351 million of Jacksonville Electric Authority revenue bonds.

The firm said it received the verbal award at the original price levels.

The final offering included $169 million of bulk power supply system revenue bonds, priced to yield from 2.70% in 1994 to 5.37% in 2013. A 2021 term, containing $83 million, was priced as 5 1/4s to yield 5.45%. There also was $182 million of electric system revenue bonds, priced to yield from 2.70% in 1994 to 5.37% in 2013, and 5.45% for $26 million of term bonds due in 2019.

The managers said they expected Moody's Investors Service to rate the bonds Aa1 and Standard & Poor's Corp. to rate the issue AA. The deal is rated AA1 by Fitch Investors Service.

In other action, Smith Barney Shearson priced and repriced $181 million of Orange County, Fla., sales tax refunding revenue bonds.

At the repricing, yields were lowered by two to seven basis points throughout the loan, except for the yield in 2024, which was raised by one basis point.

The final offering included $53 million of Series 1993A bonds priced to yield from 4% in 1998 to 5.28% in 2010. A 2016 term was priced as 51/4s to yield 5.37%. There also was $128 million of Series 1993B bonds priced to yield from 4.18% in 1999 to 5.28% in 2010. A 2013 term was priced as 5 1/4s to yield 5.40% and a 2024 term, containing $105 million, was priced as 5 3/8s to yield 5.51%.

The bonds are insured by the Financial Guaranty Insurance Co. and rated triple-A by Moody's, Standard & Poor's, and Fitch.

Secondary Markets

In secondary trading, action was light to moderate, traders said, as the market sat through a typical pre-holiday session.

In secondary dollar bond trading, New York State Power Authority 5 1/4s of 2018 were quoted 98 3/4-7/8 to yield 5.34%; Los Angeles Convention Center MBIA 5 1/8s of 2021 were quoted at 5.44% bid, 5.43% offered; and Philadelphia Water Cap. Guaranty 5 1/2s of 2014 were quoted at 99-3/8% to yield 5.58%.

Michigan Building Authority AMBAC 5.30s of 2016 were quoted at 5.45% bid, 5.42%; Charlotte COP AMT AMBAC 5 1/4s of 2020 were quoted at 5.43% bid, 5.40% offered; and Fulton-DeKalb MBIA 5 1/2s of 2020 were quoted at 99 3/8-1/2 to yield 5.54%.

In short-term note trading, yields were unchanged to five basis points lower on the day, traders said.

In late action, California notes were quoted at 2.78% bid, 2.70% offered; Los Angeles notes were quoted at 2.78% bid, 2.72% offered; and New York State notes were quoted at 2.47% bid, 2.43% offered.

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