A reduction in new-issue supply helped keep municipal bond prices firm this week, as The Bond Buyer's weekly indexes were either unchanged or slightly lower from a week ago.

The revenue bond index and the average yield to maturity of the 40 bonds in the Bond Buyer Municipal Bond Index both hit record lows for the third consecutive week.

The revenue bond index, which was introduced in September 1979, declined four basis points, to 5.52% from 5.56% last Thursday.

The average yield to maturity, which began in January 1985, fell six basis points, to 5.55% from 5.61%. Part of the reason for the larger decline was that the bonds in the index were changed on Aug. 31, reducing the average coupon rate to 5.53% from 5.59%.

The Municipal Bond Index itself also reached another record high of 104 14/32, an increase of 12/32 from a week ago.

The yields on the 20-bond and 11-bond indexes of general obligation bonds were unchanged from last week, remaining at 5.35% and 5.26% respectively. It was the 20-bond index's lowest level since March 14, 1974, when it was 5.32%, and the 11-bond index's lowest point since Dec. 1, 1977, when it was 5.20%.

In the five weeks since July 29, the 20-bond and 11 bond indexes have both dropped 30 basis points; the revenue bond has fallen 29 basis points: and the average yield to maturity is 21 basis points lower.

Over the past year, since Sept. 3, 1992, the declines in yield have reached 89 basis points for the 20-bond index, 90 basis points for the 11-bond index, and 86 basis points for the revenue bond index.

U.S. Treasury debt prices rallied for the third straight week, pushing the yield on the bellwether 30-year bond down six basis points, to a record low of 6.03% from 6.09% last Thursday.

"The market stayed generally firm before the Labor Day holiday, primarily because of low issuance," a market analyst said. "We barely scratched $2 billion this week. There was some sideways shopping going into tomorrow's unemployment numbers. We just started to see the market start breaking out today."

As of 3:30 p.m. eastern daylight time, municipal bond prices were generally up about 1/2 point.

"The retail side continues to be pretty active," the analyst said, "and there's been good dealer follow-through as evidenced by The Blue List's decline to about $1.4 billion. In the mutual funds, all segments -- short-term, intermediates, long-term, and high-yields -- saw net increases this week in deposit flow."

"It's been your basic holiday week," a portfolio manager said. "There was some activity, but you've had minimal supply. I think the market has been shocked by this ongoing rally. Munis are very inexpensive across the board versus Treasuries. People are participating, but they're participating reluctantly."

The Bond Buyer's 30-day visible supply was down $120 million on Thursday to $2.01 billion. That was $1.1 billion below last Friday's total of $3.11 billion. Standard & Poor's Corp.'s The Blue List, a measure of dealer inventory, was down $100 million yesterday, to $1.45 billion from $1.55 billion on Wednesday.

"Some investors are very wary because supply has been so short." the portfolio manager said. "They're looking for supply to come back sometime after Labor Day."

The Bond Buyer's one-year note index fell seven basis points, to 2.76% from 2.83% a week ago.

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