Market fades out, so players settle for tagging after dip in Treasuries.

Treasury market weakness knocked municipals 1/4 to 3/8 points lower yesterday as participants looked toward a featherweight of a new-issue week.

"With no market of our own, we are just following Treasuries," a municipal analyst said.

Yields on high-grade issues rose by three basis points, while dollar bond prices dropped 3/8 point. Activity was light.

On the new-issue from, the spotlight will shine on $115 million Lehigh County, Pa., industrial development authority revenue bonds for the Pennsylvania Power & Light Co.

The offering is expected to be negotiated through CS First Boston today. Also this week, Tempe Union High School District is expected to sell $102 million of bonds in a deal negotiated through Peacock. Hislop, Staley & Given Inc. So far. Lehigh and Tempe are the only two issues expected to top $100 million this week.

Austin has this week's biggest competitive deal at just under $42 million. Bidding is scheduled for tomorrow.

"I'll take a look," Margaret D. Pas MBIA-insured.

"I think you have to be selective about utility issues over the next several years," Patel said, adding that utilities are under pressure to lower rates to large customers.

"We might see some erosion in credit quality over the next several years," Patel said.

While overall action was "completely dead" yesterday, Patel said municipal bond funds face continued sellmg pressures. Because the funds have continued to sell slowly and steadily over the summer, the market has not felt the paper pinch that would otherwise have been created by the lack of new issues, she said.

"But one of these months the reality will hit them that municipals are very, very cheap," Patel said. Once the fund selling subsides. municipals are going to get rich to Treasuries "very quickly," Patel said.

Stella Wong, senior portfolio manager of Franklin's just under $600 million Pennsylvania Tax-Free income Fund. also stud she plans to look at the Lehigh County deal. Barring any eleventh-hour entrants. "it's probably the largest deal that we are going to have this week." she said. Franklin also will be looking at the offering for use in further funds, Wong said," but participation will hinge largely on pricing."

The offering, which consists of a single 2029 bullet maturity, is slightly longer than what Wong has been buying for in her Pennsylvania fund," she said. And. considering. the shape of the yield curve. "there's really no reason to extend [maturity] unless you are getting compensated," she said.

This week's calendar may be slim, but one underwriting source expects activity to pick up next week.

"This week is just kind of back to school week," he said, adding that the forward calendar due out tomorrrow should show more activity.

The source said the municipal market saw "a lack of supply all through the summer." which marked a return to the traditional pace of summers past. On this day last year, the 30-year government bond was yielding 5.95%. he said. making it easy to see why refinancings boosted new issue volume in 1993.

"We've lost that, " he said.

Many participants yesterday were either just returning to work or still on vacation.

"This is my first day back from vacation," said one portfolio manager, adding that he was still digging through the paperwork. As for this week. "I think without a lot going on in the primary, you tend to focus on the secondary," he said. He said it appears that bonds are available, adding that trades told him that selling was going on last week.

But while the source said his funds are experiencing 'slight inflows," he won't be shopping this week.

The 30-day visible supply of municipal bonds yesterday totaled $1.68 billion, down $5.4 million from Friday. That comprises $1.2 billion of competitive bonds. up $24 million from Friday, and $479 million of negotiated bonds, down $29.5 million.

Standard & Poor's Blue List of municipal bonds declined $50.9 million yesterday to $1.6 billion.

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