Municipal bond prices ended unchanged to a quarter-point higher yesterday, as euphoria in the government market over the Federal Reserve's 75 basis-point increase in short-term interest rates proved fleeting.

"I think you had a little psychological bounce because they raised [shortterm rates] more than people expected, but I think overall people are still looking for higher rates," one trader said. Traders earlier said the market had been expecting at least a half-point increase. Another municipal trader said the puzzling thing about yesterday's action by the central bank was the length of time it took before the Fed announced the move.

"Which means to me that they probably debated for a while," he said.

"There was probably an argument over 50, 75, and 100" basis points, said the trader, who thinks yesterday's move will probably mark the last increase this year.

A municipal analyst yesterday pegged yields on high-grade issues as unchanged, though improvement was noted in some spots. Dollar bonds ended up 1/4 point, with most of the gains coming after the Fed's move was announced, he said.

In debt futures, the December municipal contract was up 14/32 to 82 21/32. Yesterday's December MOB spread was negative 482, compared with negative 480 on Monday. The 30-year Treasury bond ended up nearly point to yield 8.04%.

Prior to the Fed's move, a municipal trader described the market as "flat to up grudgingly in spots."

Without the Fed's anticipated move, he said, the market probably would have been down "substantially" in the face of fresh information on capacity utilization, industrial production, and retail sales in October.

"I think if people didn't know the Fed was going to tighten today, they would probably have taken the market down," the trader said. "But since they're expecting this, they don't want to get caught short if the market's going up."

The Commerce Department reported that retail sales jumped 1.1% in October, well above expectations. Capacity utilization rose to 84.9%, a 0.4 percentage point gain from 84.5% in September. The October level was thought to be the highest on record, and exceeded analysts' expectations. Fed data going back to early 1982 shows no higher reading.

U.S. industrial production climbed 0.8% in October, helped by gains in auto parts and other manufacturing sectors.

Today, the consumer price index for October will be released at 8:30 a.m.

John Lonski, senior economist at Moody's Investors Service, noted that the 30-year Treasury bond spiked up 25/32 shortly after the Fed news broke, but quickly settled back to a gain of 17/32 point.

"I think the bond market still refuses to believe that the Fed's latest interest rate action will be enough to cap the rise of inflation risk," Lonski said.

The economist said close inspection of yesterday's economic reports suggests that real gross domestic product could post a 4% gain in the final three months of the year, a level that was supposed to be prevented by earlier Fed rate hikes.

"We could conclude that the earlier Fed rate hikes have hardly put a dent in U.S. economic activity, and the Fed felt compelled to take a more aggressive action if it is to prevent inflation from rising," Lonski said.

He expects to see further Fed rate hikes until rates of resource utilization reach a peak, he said.

"Nobody is seriously arguing that the unemployment rate will bottom at October's 5.8% -- most believe that the unemployment rate could fall to 5.5%, if not lower," the economist said.

Lonski said that in its release yesterday, the Fed made special mention of persistent economic strength as well as the rising rate of resource utilization.

"So my instruction would be to get a better handle on future Fed actions, focus on what becomes of the unemployment rate as well as the rate of capacity utilization," he said. "As long as productive resources are more fully utilized, you should look for more Fed rate hikes."

In the primary market yesterday, the negotiated sector saw a Goldman, Sachs & Co. group tentatively price $219 million of Cleveland Public Power System first mortgage revenue bonds. The MBIA-insured bonds were priced with top yields of 7.15% in 2024 on the current interest bonds and 7.20% in 2013 on the zero coupon bonds.

Yesterday's competitive lineup included $75 million of Clark County, Nev., School District bonds and $67 million of New York State certificates of participation. Lehman Brothers won the FGIC-insured Clark County bonds with a true interest cost of 6.8252%, while Dain Bosworth had the cover bid of 6.8277%. The bonds were reoffered to investors with a top yield of 6.75% in 2015.

Goldman Sachs won a $67 million New York State COP issue with a 6.34% TIC. Merrill Lynch & Co. had the cover bid at 6.3652%. Serial bonds were reoffered to investors at yields ranging from 5.40% in 1996 to 6.80% in 2002. Moody's rates the bonds Baal, while Standard & Poor's Corp. rates them BBB.

Elsewhere, the 30-day supply of municipal bonds yesterday totaled $5.08 billion, down $301.5 million from Monday. That comprises $2.152 billion of competitive bonds, up $26.3 million from Monday, and $2.929 billion of negotiated bonds, down $328 million from Monday.

Standard & Poor's Corp.'s Blue List of municipal bonds was up $485,000 to $1.88 billion.

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