The market was inactive yesterday as players did little but speculate prices will rally on a Bush presidential win and sink on a Clinton victory.

No deals of significant size were priced yesterday.

Despite the lackluster tone, municipals, which made progress at the end of last week after a painful correction, were dragged lower by the Treasury market.

Governments lost more ground as the Street priced in fears of a Clinton presidency.

By session's end, tax-exempts were unchanged to as much as 1/4 point lower.

In the debt futures market, the December municipal contract settled down 3/32, to 93.19. The MOB spread narrowed to negative 285, however, as municipals fared better than the government contract.

The tax-exempt market had a firm tone at the open, traders said, as the Street anticipated more interest from recently returned retail investors.

Traders said the rush of new deals, which forced municipal prices sharply lower over the last two weeks, had subsided somewhat as yields climbed, dissuading some issuers from entering the market.

With supply now somewhat lighter, lingering higher yields have enticed some retail investors into the market, cheering supply-strapped dealers.

Reflecting the ease in supply in both the primary and secondary markets, The Bond Buyer calculated 30-day visible supply at $5.9 billion, while The Blue List of dealer inventory feel $69.6 million, to $1.76 billion.

But away from the basic forces driving the market, prices were expected to suffer volatility as players eye the incoming President in an attempt to gauge fiscal stimulus plans, which would affect interest rates.

Traders yesterday estimated a Clinton win would mean as much as a two point loss for tax-exempt bonds, while a Bush victory would likely mean a rally.

But just how much bond prices will move and if those movements will be long lasting were in doubt, they added.

In addition, today's refunding announcement and Friday's all-important October employment report added to uncertainty.

"It's my guess that there will be a lot of volatility over the next couple of days," said James L. Kochan, head of fixed-income research at Robert W.Baird & Co. "If Clinton wins, the market will try to drive the Treasury long bond higher, possibly to 7.75%. The market becomes a very good buy opportunity after the dust settles."

George D. Friedlander, head of research at Smith Barney, Harris Upham & Co., also made several points in favor of lower tax-exempt yields in the firm's latest newsletter.

Chief among his remarks, he noted municipals are cheap to the Treasury market, making them attractive to investors.

He added that retail investors have returned looking for higher yields, and funds that have played "wait and see" until the election, have stored up cash they will need to spend.

"Packaged-product buyers dominated retail fixed-income activity over the first nine months of the year -- and a slowdown in that sector was a key factor in the recent weakness in the market," he said. "The market has finally reached yield levels that reawakened the retail sector, in an environment where individual investors have huge amounts of cash and much work to do to rebuild their portfolios."

Secondary Markets

Traders reported very little secondary activity yesterday as the market stayed in idle, waiting for the outcome of the election.

In secondary dollar bond trading, prices were quoted unchanged to as much as 1/2 point lower.

In late action, California GO 6s of 2015 were quoted at 6.65% bid, 6.60% offered; New York City Water and Sewer 6 3/8s of 2022 were quoted at 93 3/4-94 1/4 to yield 6.871% on the bid-side; and Washington Public Power Supply System 6 1/2s of 2015 were quoted at 96 1/2-97 to yield 6.80%.

Puerto Rico GO 6s of 2014 were quoted at 91 7/8-92 1/8 to yield 6.717%; Denver Airport AMT 6 3/4s of 2022 were quoted at 92 1/2-3/4 to yield 7.375%; and New Jersey Turnpike Authority 6 1/2s of 2016 were quoted at 99 3/4-100 to yield 6.52%.

In short-term note trading, yields were about three basis points lower on the day.

In late action, notes of Los Angeles, New Jersey, Pennsylvania, Texas, and Wisconsin were all quoted at 2.78% bid, 2.73% offered. California notes, meanwhile, were quoted at 2.92% bid, 2.87% offered.

NYC Housing Bonds

The New York City Housing Development Corp. announced yesterday that the owner of a 1,107 unit residential housing development in the city has defaulted on its Federal Housing Administration-insured loan.

The default on the $ 157 million mortgage balance by Roosevelt Island Associates affects two bond issues with an original principal of $175 million, said Martin Siroka, vice president and general counsel of the Housing Development Corp.

The multi-family revenue bonds affected are 1985 Series A, dated Feb. 1 1985, and 1987 Series A, dated Aug. 1, 1987.

Siroka said the mortgage loan in 99% insured by the federal housing

administration. He said the V

uninsured portion of the mortgage is covered through letters of credit from Morgan Guaranty Trust Co. and Chase Manhattan Bank.

The default, if it is not cure, is the first time the city housing development corporation will assign a loan to the federal agency to collect insurance, Siroka said.

Roosevelt Island Associates is a limited partnership that owns a five-building project on Roosevelt Island, which is in the East River

off Manhattan Island. The project V

was formerly known as Roosevelt Island Northtown Development Phase II and is now called Manhattan Park.

The next interest payment on the bonds is scheduled for Feb. 15, 1993.

Several market players said bond yields are likely to rise dramatically as as result of the mortgage payment default.

A fund manager said the most volatile of the bonds, the zero coupon bonds of 2030, were quoted

last week at 7.76%. The yields V

could soar to 9.50%, which is right around the coupon, he noted.

In addition, the manager said default proceedings could drag on for as long as a year.

Charles Gasparino contributed to this column.

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