Municipal underwriting desks took last week off as a year-long rally of supply dried up, allowing bond prices to move higher and yields on The Bond Buyer's indexes to dip as much as six basis points.

The 20-bond index fell six basis points, to 6.19% from 6.25% a week ago. The 11 -bond index was down five basis points, to 6.10% from 6.15% last Thursday.

The 30-year revenue bond index also fell three basis points, to 6.41% from 6.43%. the low for the year.

Municipal participants roundly described the week's preholiday trading volume as lackluster and unexciting.

"We saw retail business volume drop off by about 30% this past week," said James M. Skyrm, senior vice president and manager of PaineWebber Inc.'s retail group. But, he added, "There's still a good deal of money out there supporting the market."

Skyrm said the market is also being helped by the belief that January "should be a pretty strong month of new issues. This week's really just a brief respite before the next storm hits."

The municipal market will not be immediately tested by supply. Looking ahead, The Bond Buyer calculated 30-day visible supply at $2.89 billion yesterday.

"Supply looks like it's going to be under control until Mid-February or early March." said Glen Rauch, head of Glen Rauch Securities Inc. "Aside from the infusion of cash that will come into the market with Jan. 1 call dates, there is also money that cash managers and funds generally have at the start of the year.

"The market firmed up well [on Wednesday]," Rauch said. "Now that traders are dealing with January settlement dates, they have even more money at hand."

The new-issue calendars are light next week. The negotiated sector currently features $150 million of Wisconsin general obligation refunding bonds, to be priced by Morgan Stanley & Co.

The competitive sector carries several larger issues. An issue of $200 million of Los Angeles Department of Water and Power revenue bonds is scheduled to be sold Jan. 5; $100 million of Virginia GO bonds will be sold Jan. 6; and $210 million of San Jose Finance Authority revenue bonds are slated for sale on Jan. 12.

Through Dec. 22, long-term municipal bond volume is at $229.98 billion on 12,015 issues, both all-time records.

Municipal participants said a large part of the reason for the record-high issuance in 1992 was due to an increase in refundings.

One head of a trading desk said that 1993 should be "just as good a year, if not better."

Since Nov. 19, the indexes have traded in a tight range, with the 20-bond moving between 6.28% and 6.19%, the 11-bond between 6.19% and 6. 1 0%, and the revenue index between 7.53% and 7.41%.

The daily Bond Buyer Municipal Bond Index's average yield to maturity fell two basis points, to 6.40% from 6.42%.

U.S. government securities performed slightly better than tax-exempts, as the benchmark 30-year Treasury bond's yield fell seven basis points, to 7.35% from 7.42%.

The Treasury market's performance closely mirrored municipals most of the week, helped by a successful two-year note sale on Tuesday. The notes were awarded at 4.71%, with a median bid of 4.68%.

The bid cover for the auction was 2.52 times, and noncompetitive bids totaled $1.045 billion.

In the short-term market, The Bond Buyer's one-year note index fell 19 basis points this week, to 2.42% from 2.61% a week ago.

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