Dwindling yearend supply and a Treasury market rally helped reduce yields on The Bond Buyer's indexes in spite of burgeoning dealer inventories.

The 20-bond index of general obligation yields declined two basis points, to 5.34% from 5.36% last week, while the 11-bond GO index slipped one basis point, to 5.25% from 5.26%.

The 30-year revenue bond index was down four basis points on the week, to 5.58% from 5.62% last Thursday.

The average yield to maturity of the 40 bonds used to calculate the daily Municipal Bond Index, which is composed mainly of revenue bonds, was also down four basis points, to 5.54% from 5.58% last Thursday.

Municipal bonds rode on the coattails of the Treasury market this week, as the 30-year bond's yield fell nine basis points, to 6.21% from 6.30%.

"Some traders had suspicions that the recent Treasury falloff was purely to allow dealers to buy this week's auctions [of two- and five-year notes] cheaply," a government market watcher said. "They felt governments would engineer a rally into January, and that came to fruition with the aggressive five-year bid."

The Treasury sold $11.04 billion of five-year notes at a yield of 5.19%, down from the 5.20% from the previous sale on Nov. 23.

"January reinvestment is what's been on traders' minds," a market analyst said. "They expect the rally to continue into January once the retail side opens their books. And even though The Blue List has been heavy, the visible supply has been very light, with no major deals foreseen through next week."

Although Standard & Poor's Corp.'s The Blue List slipped $30 million to $2 billion from $2.03 billion on Tuesday, it had been rising steadily for almost two weeks. Since hitting $1.17 billion on Dec. 8, its lowest level since Sept. 14, the key measure of dealer inventory climbed $862 million in nine business days.

During that period, the municipal bond market absorbed a hefty $15.49 billion in new note and bond issues. The Bond Buyer's 30-day visible supply started at $5.06 billion on Dec. 8, surged to $7.63 billion by Dec. 14, then dwindled to $2.9 billion yesterday - its lowest total since Sept. 16.

So far in the fourth quarter of this year, The Blue List has averaged $1.74 billion, slightly above the $1.69 billion average for the third quarter. Through Dec. 22, dealer inventory has averaged $1.58 billion, compared with a $1.36 billion average for all of 1992.

The short end resumed its downward trend, with the one-year note index dipping two basis points, to 2.28% from 2.30% last Wednesday.

The long-term indexes were calculated one day earlier than usual this week because The Bond Buyer will not be published Friday because of the Christmas holiday.

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