Prices ground through another choppy session yesterday with no revelations about near-term price prospects.

Tax-exempt players have been looking for a reason to continue the bullish mentality that ran the market up in June. Many expected the massive July 1 bond calls to push demand higher through this month.

Instead, municipals have latched onto the Treasury market for direction, gyrating within a narrow range as governments struggle to surmount their recent record price highs.

But the credit markets fell early yesterday, with municipals posting slight losses of 1/8 point after initial state unemployment insurance claims fell 12,000 to a seasonally adjusted 327,000 in the week ended July 3.

Tax-free bonds returned to where they started after Treasury short covering and lower commodities prices helped governments to recover their losses. By session's end, prices were quoted mixed with some bonds posting gains of 1/8 point, while others lost 1/8, traders said.

In the debt futures market, the municipal contract settled up 102.12. The MOB spread widened to negative 375 from negative 367 Wednesday.

Looking ahead, dealers and buyers are likely to continue a psychological tug-of-war.

So far, buyers have not exhibited an overwhelming need for bonds.

Many traders guess the buyers are waiting for the Street to sell, giving up the notion of a July uptrade. Having duped the Street, the buyers would then step in with their cash and buy bonds at cheap levels.

Conversely, the Street is trying to outwait the buy side, forcing buyers to come back into the market with their cash and buy bonds from dealers at higher prices.

"Dealers would like us to come in and push it up another five basis points," said one fund manager yesterday. "And we would like to buy it down a dime. We'll see who wins."

The siege mentality will probably hold prices at bay until one side gives in or the Treasury market makes a sudden move.

As a result, trading has been jerky at best, and sluggish most of the time.

Several traders blamed the skittish tone on the Street's memory of stiff losses suffered last August.

Last year, municipals enjoyed the same price run-up in anticipation of increased demand from July bond calls and redemptions.

Instead of taking the market higher, they got crushed by waves of selling. Buyers had pre-bought in June and then sold the market off its highs, taking profits from the Street and inflicting severe pain on dealers.

"The bath people took last summer is responsible for a lot of the apathy we're seeing today," said one trader. "The scars from last year are still fresh and people don't want to take a chance."

"The market has great expectations and here we are watching them go unfulfilled," said another seasoned trader. "There hasn't been a break either way, and we just seem to be falling into oblivion."

Traders have focused on situations and a moderate flow of bidwanteds.

Allotments from Wednesday's $640 million of New York Local Government Assistance Corp. refunding drew attention late yesterday. Bonds were said to trade dealer-to dealer at the original levels, less 1/4 point.

New Deals

New-issue action was relatively light yesterday because most of the week's deals were priced on Tuesday.

Dominating the negotiated sector, Prudential Securities tentatively priced $145 million of leasehold revenue refunding bonds for the St. Louis Municipal Finance Corp.

The offering included serial bonds priced to yield from 2.50% in 1993 to 5.50% in 2006. A 2009 term was priced as 5.60s to yield 5.75% and a 2012 term was priced as 5.70s to yield 5.85%. Capital appreciation bonds were priced to yield 6.25% in 2013 and 2014.

The offering is backed by a letter of credit from Sanwa Bank and rated AA3 by Moody's Investors Service and AA-minus by Standard & Poor's Corp.

Morgan Stanley & Co. priced and repriced $131 million of Prince William County, Va., general obligation improvement and refunding bonds.

At the repricing, yields were lowered by five basis points in 1997 and 1998.

The final scale included serials only, priced to yield from 3.20% in 1995 to 5.375% in 2014.

The issue is rated double-A by Moody's, Standard & Poor's, and Fitch Investors Service.

Looking ahead to supply, more bonds have suddenly filtered into the market. The 30-day visible supply totaled $6.59 billion yesterday, an increase of $1.85 billion from Wednesday. That is the highest it has been since June 14, when it was $6.79 billion.

But today's "New On Calendar" features $2.48 billion of new deals.

The Blue List of dealer inventory jumped $135.2 million higher from Wednesday's levels, to $1.797 billion. This is the highest level for the inventory list of dealer bonds since June 18 when it was 1.801 billion.

Secondary Markets

Traders reported continued selling, but not enough to adversely affect the broader market.

Among the more sizable blocks out for the bid was $20 million Chicago Metropolitan Water 6 1/2s of 2007, which reportedly did not trade.

There also was a block of $16 million of noncallable Triborough Bridge and Tunnel Authority 6 5/8s of 2012. Traders said the high bid was 6.39%, but the bonds did not trade and were priced to yield 5.35%.

In secondary dollar bond trading, prices were mixed.

In late action, SCPPA MBIA 5s of 2022 were quoted at 92 1/8-1/2 to yield 5.54%; MBTA MBIA 5 1/2s of 2022 were quoted at 98 1/8-1/4 to yield 5.63%, and Pennsylvania COP AMBAC 5s of 2015 were quoted at 92 1/4-1/2 to yield 5.61%.

Orange and Orlando FGIC 5 1/2s of 2018 were quoted at 5.59% bid, 5.58% offered; Washington Public Power Supply System MBIA 5.70s of 2017 were quoted at 99 1/4-1/2 to yield 5.75%; and Chicago GO FGIC 5 5/8s of 2023 were quoted at 98 1/4-1/2 to yield 5.74%.

In the short-term note sector, yields were mixed on the day.

In late action, Los Angeles notes were quoted at 2.73% bid, 2.68% offered; New York State notes were quoted at 2.16% bid, 2.10% offered, and Texas notes were quoted at 2.18% bid, 2.10% offered.

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