Municipals ignored the Treasury market rally yesterday and fell lower, as supply continued to hamstring the Street.

The losses followed a severe sell-off in the credit markets on Tuesday, when municipals fell as much as 1 1/4 points, thanks again to heavy supply pressure and a weak government market.

Treasuries rebounded from the losses yesterday, however, but tax-exempts continued lower for the most part, unable to make headway against the deluge of bonds coming to market.

This marks the fifth session that municipals have been down.

By the end of trading, secondary prices were quoted unchanged to down as much as 1/2 point, and traders estimated the market down 1/4 point on average.

In the debt futures market, the December municipal contract settled down 3/32, to 94.16. The MOB spread widened to negative 257 from negative 247 Tuesday.

But many new issues priced yesterday came with yields approximately 10 basis points higher on the day, indicating further weakness, market players said.

"We've never really faced up to the fact we have taken on tremendous supply for a long time," one market observer said. "The new issue levels suggest the secondary will adjust lower."

The Bond Buyer calculated 30-day visible supply at $7.56 billion, while The Blue List totaled $1.87 billion. The Blue List was last near that level on March 20, when it was $1.88 billion and hit a high for the year on March 17, when it totaled $2.13 billion.

New-issue volume of notes and bonds through Oct. 20 was calculated at $228.03 billion yesterday, up 35% from $169.33 billion in the same period a year ago, and just short of 1985's record of $228.8 billion.

New Issues

In competitive new-issue action yesterday, Lehman Brothers won $173 million Wisconsin general obligation bonds with a true interest cost of 6.0688%.

Lehman reported an unsold balance of approximately $4.9 million late in the day.

Serial bonds were reoffered to investors at yields ranging from 3.50% in 1964 to 6.45% in 2013. The issue is rated double-A by Moody's Investors Service and Standard & Poor's Corp.

Dominating negotiated pricings, First Boston Corp. as senior manager priced and repriced $223 million Connecticut Housing Finance Authority housing mortgage finance program bonds.

At the repricing, yields were raised by five basis points from 2001 through 2006. The 2012 yield was raised by about seven basis points, while the 2023 term yield was raised by about five basis points.

The final scale included serial bonds priced at par to yield from 5.10% in 1998 to 6.35% in 2006. A 2012 term, containing $80 million of the loan, was priced at par to yield 6.70%. And a 2023 term, containing $66 million of the loan, was priced at par to yield 6.75%.

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

Smith Barney, Harris Upham & Co. priced and repriced $189 million Central Coast Water Authority revenue bonds to raise some yields five to 1 0 basis points.

The final offering included serial bonds priced at par to yield from 4.85% in 1997 to 6.40% in 2008. A 2014 term was priced at par to yield 6.50%. A 2022 term, containing $91 million of the loan, was priced at par to yield 6,60%.

The issue is insured by the AMBAC Indemnity Corp. and rated triple-A by Moody's and Standard & Poor's.

Secondary Markets

Secondary trading was described as spotty and there were some bargain hunters in the secondary, traders said.

But the session opened with selling, they added, dominated by a block of $49 million insured Houston Water and Sewer zero coupon bonds of 2012 and $27 million insured Austin Utility zeros of 2011.

Bonds from both blocks were said to have been sold to a permanent investor around 6.85%.

In secondary dollar bond trading, prices were unchanged to down as much as 1/2 point for actively traded bonds.

In late trading, California 6 1/4s of 2019 were quoted at 6.57% bid, 6.54% offered; New York City Water and Sewer 6 3/8s of 2022 were quoted at 95-3/8 to yield approximately 6.767% on the bid-side; and Washington Public Power Supply System 6 1/2s of 2015 were quoted at 97 1/4-1/2. to yield 6.737%.

Puerto Rico GOs of 2014 were quoted at 93 1/2-3/4, to yield 6.565%; Denver Airport AMT 63/4s of 2022 were quoted at 92 1/2-93 1/2, to yield 7.375%; and Florida Board of Education 6s of 2025 were quoted at 93 1/4-94, to yield 6.50%.

In the short-term note market, yields fell about five to eight basis points on the day after yields rose as much as 30 basis points on Tuesday.

NYC Allotments

Lehman Brothers, senior manager for $759 million New York City general obligation bonds, made Street allotments yesterday after the sale Tuesday.

"There are still a lot of bonds around, but the deal looks like it's in better shape than we thought on Tuesday." a trader said.

Underwriters at Lehman estimated total Street float at between $100 million to $200 million, fewer bonds than previously thought by many in the Street.

Bonds were not formally freed to trade, but were said to be quoted dealer to dealer at 7.15% to around 7.18%. Long bonds were originally priced to yield 7.15%.

Nassau County Treasurer John V. Scaduto said two syndicates: Tuesday won the county's $103 million general obligation bond deal.

The county broke the deal into two portions: An $85 million portion and a $17 million segment.

Syndicates led by Chemical Securities Inc., Goldman, Sachs & Co., Prudential Securities Inc. bid on both portions of the age.

The $85 million portion of the deal was won by Prudential with a net interest cost of of 5.879%. Chemical Securities snared the $17 million piece with an NIC of 6.1247%.

Moody's downgraded the county's GOs to Baa from A on Monday. Standard & Poor's and Fitch Investors Service do not rate the county's GOs.

But both issues were enhanced by AMBAC and rated triple-A by Moody's and Standard & Poor's because of the insurance. With the insurance, yields on the offering were lower when compared with other GOs sold this week, including New York City's tax-exempt GO bonds, which were rated Baal by Moody's and were priced with a maximum yield of 7.15%.

The maximum reoffering yields on the two Nassau County bond issues were 6.30% and 6.35% in 2011, respectively.

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