Municipal indexes follow Treasuries lower on supply, despite Thursday's profit-taking.

A bullish Treasury market and meager supply of new municipal issues pushed The Bond Buyer's weekly indexes lower this week, despite some profit-taking yesterday.

The 30-year revenue bond index and the average yield to par call of the 40 bonds in the Bond Buyer Municipal Bond Index both hit record lows again, for the fourth consecutive week.

The revenue bond index, which was introduced in September, 1979, declined eight basis points, to 5.44% from 5.52% last Thursday.

The average yield to par call, which dates from July 1984, fell 10 basis points, to 5.46% from 5.56%, after reaching a record low of 5.43% Wednesday.

The Municipal Bond Index itself climbed to a record high of Wednesday, up 1 6/32 from last Thursday, before falling back to 105 11/32 yesterday afternoon.

The yields on the 20-bond and 11-bond indexes of general obligation bonds both declined 11 basis points from last week, to 5.24% and 5.15%, respectively, from 5.35% and 5.26%.

The 20-bond index has not been as low since Feb. 21, 1974, when it was 5.21 %. The 11-bond index is at its lowest point since Feb. 28, 1974, when it was also at 5.15%.

U.S. Treasury debt prices took a beating Thursday, falling 1 1/2 points. However, the yield on the bellwether 30-year bond was still down seven basis points from a week ago, to 5.96% from 6.03%. The long bond had closed at a record low of 5.86% on Wednesday.

Economic indicators on consumer confidence, mortgage loans and employment activity gave the U.S. government market reason to pause yesterday, as they showed that current low interest rates may finally be helping the economy. The ABC/Money Magazine consumer comfort index rose to negative 36, a 13-week high; the Mortgage Bankers Association's index on mortgage activity jumped to 1616.6 from 1433.2; and initial state unemployment insurance claims fell 10,000 in the week ended Sept. 4 to a seasonally adjusted 316,000.

However, enough buyers were attracted by the market's lower price levels, allowing yields to stabilize.

"People have taken a step back from the market to see if this is a correction or reversal of the bullish trend," a government trader said. "Tomorrow's [Firday's] producer price index will play a major role in the debate between market bulls and bears."

Over the past several weeks, new-issue supply has dropped considerably in the municipal market. Last week, only $2.63 billion of long-term new issue debt was sold - the lowest weekly volume since the week ended April 9, when $2.36 billion was sold. The Bond Buyer's 30-day visible supply plunged last Thursday to its lowest level in more than a year, when it hit $2.01 billion. it had not been at that level since May 28, 1992, when it was $1.97 billion.

The reduced supply, coupled with persistently insatiable demand, has sent the indexes tumbling. In the seven weeks since July 29, the 20-bond index has dropped 41 basis points and the revenue bond index has dropped 43 basis points.

The Bond Buyer's one-year note index fell seven more basis points, to 2.69% from 2.73% a week ago. The index is at its lowest level since July 7, when it was 2.63%.

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