Municipal bond prices ended unchanged to slightly higher yesterday, ahead of today's meeting of the Federal Reserve's policy-making Federal Open Market Committee.

"There has been bid wanted out all day and that's really it," a municipal trader said. "There's no calendar, no nothing, people want to see what the Fed does [today], and that's it."

Traders cited a mix of redemption-related selling and tax swapping yesterday.

"There were a few lists out, but I wouldn't say there were a lot," a second trader said. "USAA had a list out, the Franklin Fund was trying to sell some nonrated pre-res because it's still seeing a few. redemptions, but the market absorbed them very well, and we're up on the day."

In light secondary activity yesterday, yields on high-grade issues ended unchanged, while dollar bond prices ended 1/8 point higher. In debt futures, the March municipal contract was up 13/32 to settle at 84 22/32. Yesterday's day's March MOB spread was negative 480, compared to negative 485 on Friday.

A trader attributed yesterday's gains to supply and demand factors.

"Our technicals are excellent [and] we have no calendar for the next three weeks moving forward," he said. "Cash-flow buyers will continue to try and spend money because they're getting money in." The trader said he believes municipals should outperform form Treasuries.

Another trader said he was surprised at the level of selling activity for this time of year.

"It's incredible how much selling people have put off till the end of the year," he said. "It seems as if we should have gotten through most of our swapping by now."

As for today's FOMC meeting John Lonski, senior economist a Moody's Investors Service, sees 50-50 chance that the Fed will boost short-term rates for the seventh time this year.

The Fed is torn between "considerable" evidence of economic growth, which would favor a tightening, and better-than-expected news on inflation, Lonski said.

Lonski suspects that the Fed is "less than convinced" that the strong 3% annual growth rate in real gross domestic product will persist through the first half of 1995.

"Hence, perhaps the Fed wants to have a little more evidence regarding the underlying strength of the U.S. economy before it acts, possibly in grand style" next month, he said.

"There's no escaping the fact that the intentions of Fed tightening are quite clear, and that is to slow economic growth to a range of about 2.5% to 2.7%," Lonski-said. "If the central bank foregoes a rate hike today, the next FOMC meeting starting Jan. 31 is highly certain" to produce one, he said. The debate then is likely to be about whether the Fed tightens by 75 or 100 basis points.

While the Fed's last move was widely anticipated, a half-point hike in the federal funds rate today "might be enough to convince investors that the Fed is serious about reigning in inflation," which could spark a year-end bond rally, Lonski said.

"It's not going to be good news for the stock market, it's not going to be good news for those with variable-rate interest obligations, but it could be good news for bonds," he said.

Lonski said he is surprised at the extent to which the bond market has "shrugged off" news of stronger-than-expected economic activity in the fourth quarter.

"I think that what we are discovering is that despite this year's 250-basis-point hike in the federal funds rate, for the most part interest-rate

hike today, the next FOMC meeting starting Jan. 31 is "highly certain" to produce one, he said. The debate then is likely to be about whether the Fed tightens by 75 or 100 basis points.

While the Fed's last move was widely anticipated, a half-point hike in the federal funds rate today "might be enough to convince investors that the Fed is serious about reigning in inflation," which could spark a year-end bond rally, Lonski said.

"It's not going to be good news for the stock market, it's not going to be good news for those with variable-rate interest obligations, but it could be good news for bonds," he said.

Lonski said he is surprised at the extent to which the bond market has "shrugged off" news of stronger-than-expected economic activity in the fourth quarter.

I think that what we are discovering is that despite this year's 250-basis-point hike in the federal funds rate, for the most part interest-rate sensitive expenditures continue to do well, especially in the areas of motor vehicles and business investment," the economist said.

In other news yesterday, Salomon Brothers Inc. said it had auctioned off about $196 million original principal amount of agency collateralized mortgage obligations held by the Orange County, Calif., investment pool. Bids exceeding $913 million were received for yesterday's auction, which completes the sale of all of the county's holdings of agency CMO securities, a Salomon Brothers release said.

The 30-day visible supply of municipal bonds totaled $1.382 billion yesterday, down $91.9 million from Friday. That comprises $516.8 million of competitive bonds, up $17 million from Friday, and $865 million of negotiated bonds, down $108.9 million.

Standard & Poor's Corp.'s Blue List of Municipal Bonds was up $119.4 million yesterday, to $1.72 billion.

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