Investors bought new deals at aggressive levels yesterday, and secondary prices rallied 1/4 to 3/8 point in active trading.

Municipal market players had grown edgy by the end of last week after several bumpy sessions. Fearing a price correction that would take the market off highs that have pushed yields to near recent record lows, trading slowed and the tone soured.

But uncertainty evaporated Tuesday, and buyers stepped into the market with cash from recent July 1 bond redemptions and prices began to improve.

The rally gained momentum yesterday as Treasury prices stabilized and by session's end, dollar bond prices were quoted up 1/4 to 3/8, while high-grade bond yields fell about five basis points.

In the debts futures market, the September municipal futures contract rose 18/32, to 98.22. The MOB spread widened to negative 138 from negative 139 Tuesday as the Treasury market beat municipals by a nose.

"Accounts have cash to spend, and it feels very firm," a trader said late in the session. "It's a tough market because you have to be nervous and people are always expecting a price drop. But if you're not in now, you're shut out because levels are so high."

The market faces today's initial jobless claims report, which is expected to show an 8,000 increase for the week ended July 11, but enthusiasm was not tainted late yesterday.

Confidence was further bolstered by underwriters who continued to price deals aggressively with success.

Leading new-issue activity, three firms bought $400 million Puerto Rico tax and revenue anticipation notes, dated July 29, due July 30, 1993. The notes were reoffered to investors at 2.50%. (See related article page 4.)

The issue is rated MIG-1 by Moody's Investors Service and SP1-plus by Standard & Poor's Corporation.

In other new-issue action in the note sector, a 12-member syndicate led by Goldman, Sachs & Co. priced and repriced $375 million of non-callable Iowa tax and revenue anticipation notes to lower the reoffering yield by five basis points.

The securities were priced as 3 1/2s to yield 3.05%, due June 30, 1993.

The issue is backed by a letter of credit offered by Union Bank of Switzerland; National Westminster Bank PLC; Swiss Bank Corp.; Commerzbank AG; and Dresdner Bank.

The notes are rated MIG-1 by Moody's and SP1-plus by Standard & Poor's.

In the competitive sector, $75 million Maryland Department of Transportation consolidated transportation revenue bonds were won by a PaineWebber Inc. group with a true interest cost of 5.386%.

The firm reported all bonds sold shortly after the official pricing was released.

Serial bonds were price to yield from 4.25% in 1996 to 5.45% in 2004. Bonds in 1995 and from 2005 through 2007 were not formally reoffered to investors.

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

An issue of $50 million of Oakland, Calif., unlimited tax general obligation bonds was won by Bank of America with TIC of 5.9743%.

Serial bonds were priced to yield from 3.50% in 1994 to 5.95% in 2012. A 2017 term was priced as 6s at par and a 2022 term was priced as 6s to yield 6.05%.

The bonds are insured by the Financial Guaranty Insurance Co. and are rated triple-A by Moody's, Standard & Poor's, and Fitch Investors Service.

In follow-through business, Merrill Lynch released $372 million New York State general obligation bonds from syndicate restrictions. In late secondary trading, the 6 1/8s of 2015 were quoted trading at 6.15%, the original reoffering yield.

Secondary Market

Trading was active for the second session in a row, and traders reported bid-wanted lists and some sizable trades changing hands. Most of the trading was dealer to dealer, but there were bonds going to permanent investors, traders said.

Trading included a $3 million block of Georgia 5 1/2s of 2006, which were said to have traded at 99 1/2 to yield 5.55% and Florida Turnpike 6.35s of 2022, which were said to have traded at 6.13%.

In other secondary dollar bond trading, Colorado Spring 6 1/8s of 2020 were quoted at 99 1/4-1/2 to yield approximately 6.18% on the bid side. Texas Municipal Power Authority MBIA 5 3/4s of 2012 were quoted at 96-1/4 to yield 6.09%, and Salt River Ariz. 5 3/4s of 2019 were quoted at 85-1/4 to yield 6.13%. South Carolina Public Power Authority 5 3/4s of 2021 were quoted at 95-1/4 to yield 6.12%.

Short-term note yields, meanwhile, were mixed, traders said.

In late action, Los Angeles Trans were quoted at 2.86% bid, 2.84% offered, New York City Tans were quoted at 2.87% bid, 2.75% offered, and Wisconsin notes were quoted at 2.98% bid, 2.90% offered. New York State Trans were quoted at 2.90% bid, 2.85% offered.

California Water Rating Hit

Standard & Poor's lowered its rating on $1.2 billion of California Water Resources Development general obligation bonds to A-plus from AA.

The action follows the July 15 downgrade of the state's GO debt, Standard & Poor's said in a release.

The rating outlook is "stable," reflecting the likelihood the state's financial factors will remain weak for the immediate future, Standard & Poor's said.

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