Prices quivered Friday under growing supply pressure and any hope for a July rally began to disintegrate amid a rash of selling.

Municipals were quoted unchanged to point lower. But only a stronger Treasury market prevented prices from falling further, traders said.

The 30-year long bond posted a record low yield of 6.51% before profit-takers stepped in and took the price off its highs.

Governments rallied after news that the University of Michigan consumer sentiment index fell to 76.9% in July from 81.5% in June.

But growing supply and a paucity of buyers rattled municipal market confidence enough for players to cite the strong possibility of an imminent selloff.

"We've seen big sellers in the pits and then lots of bid-wanteds in the cash market," said the head of a big Wall Street-based firm. "We're in for some tough sledding these next couple of weeks, and you could see the golden egg explode."

The market's main obstacle is a whopping $9.8 billion of new bonds and notes poised to invade the primary sector this week.

That amount of bonds would make this the fourth busiest week of the year, behind June 14-18 when $10.63 billion of notes and bonds were sold: June 21-25 when $10.41 billion were sold; and April 17-24 when $9.97 billion were sold, according to Securities Data Co.

The wave of supply comes right on the heels of $5.8 billion priced last week, much of which has been relegated to the Street, thanks to the lack of investor demand.

Looking ahead, traders say municipals will depend upon the Treasury market for strength to shoulder the supply.

Governments were strong on Friday, and several traders said they should hang in for a while on a good technical bid. But traders also said the likelihood that Treasury bonds would retain their strength was by no means certain. Without the Treasury market to lean on, municipals could suffer a sharp selloff, market players said.

"Treasuries are the only reason we've held on and if they hit their highs and turn south we're going to get slammed," a trader said. "We could get a market where underwriters are canceling deals because there is no bid.

"We're totally at the mercy of the Treasury market," he said.

Friday's Market

The market opened with brisk selling in both cash and futures.

Secondary traders reported some sizable bid-wanted lists and blocks of bonds out for sale from funds, and the bid for municipals was weak.

Prices firmed slightly later in the day when the Treasury market surged to its new record low. But prices faded when governments bounced off the 6.51% mark, closing mixed, with some bonds posting 1/8 point gains, traders said.

In the debt futures market, the September municipal contract also climbed into positive territory with governments. But the contract landed with a thud when Treasuries came off their highs, settling down 10/32 102.04.

The MOB spread was crushed by sellers, widening to negative 441 from negative 424 Thursday. Friday's mark is a record low for the MOB, the fourth in a row.

New-issue activity was typically light ahead of the weekend.

In follow-through business, Goldman, Sachs & Co. freed $691 million Washington Public Power Supply System Nuclear Projects Numbers 1, 2, and 3 refunding revenue bonds from syndicate restrictions.

In late trading, the MBIA 5.60s of 2015 were quoted at 5.77% bid, 5.73% offered. The bonds were originally priced to yield 5.75%.

Goldman also freed to trade $247 million Lincoln, Neb., electric system revenue refunding bonds.

Traders quoted the 5 1/4s of 2015 were quoted at 5.56% bid, 5.55% offered, where they were originally reoffered to investors at 5.55%.

New Supply; SURFs

The short-term note sector is dominated this week by $2 billion of California revenue anticipation notes. On Thursday, Moody's and Fitch affirmed their double-A ratings on the state's debt.

Lehman will use its new Step Up Recovery Floater, or SURF, program on the note sale, just days after completing the first offering of the new derivative product.

California will consider issuing a portion of its RANs later this week as SURF securities, according to preliminary documents for the transaction.

The California SURFs would pay investors a floating rate based on the J.J. Kenny Index. Interest would be calculated weekly. The RANs are expected to mature on June 15, 1994.

The first issue of SURFs, an $11 million portion of last Wednesday's offering from the Winchester, Va., industrial Development Authority, paid investors a floating rate based on the 10-year constant maturity Treasury rate, a taxable market index.

The issuer of SURF securities enters an interest rate swap with Lehman Brothers to lock in a sythetic fixed-rate.

The California SURF would have a minimum and maximum rate, to be set at the time the notes are priced. The Winchester SURFs had a maximum rate of 15.50%, and a minimum of zero.

Turning to the long-term sector, the negotiated slate features several sizable offerings, including $750 million Pennsylvania Intergoverment Cooperative Authority revenue bonds, to be priced by Pryor, McClendon, Counts & Co.; $675 million New York City GO bonds, to be priced by First Boston Corp.; and $480 million New York State Medical Care Facility Finance Agency revenue bonds, to be priced by Bear, Stearns & Co.

The high-grade market will get a test from two competitive deals: $285 million Missouri Gos, and $201 million Charlotte, N.C., various GOs, both slated for sale tomorrow.

On the economic front, indicators continue to reflect a sluggish economy - good news for bonds in the long run - and inflation has stayed under control.

There is very little on this week's calendar that would be likely to affect the bond markets, other than Federal Reserve Board Chairman Alan Greenspan's Humphrey-Hawkins testimony to the House tomorrow.

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