Municipal bond prices ended unchanged to slightly lower Friday, as participants looked ahead to a short holiday week that will see bidders vie for $407 million of California general obligation bonds.

"I think we are going to look at it," said Joel Silva, a portfolio trader at the Benham Group, of tomorrow's California deal. Benham's participation will depend largely on how the deal is structured, he said.

Silva would like to see some premium bonds in the serial maturities and perhaps "some nice 75-basis-point discounts on the long end." California usually runs par bonds, which Benham doesn't have much use for these days, he said.

"The problem with what we are seeing in the market fight now is the yield curve is so steep that if you do get a flattening of the yield curve, all those serial bonds that are issued at par are just going to trade off to be discounts, and then soon they'll become de minimis bonds," Silva said.

The bid side for those de minimis bonds is off dramatically, he said.

Silva was referring to a provision in the Budget Act of 1993, which causes gains on the sale bonds purchased at a market discount to be treated as ordinary income rather than capital gains.

"So they become less and less favorable even on an after-tax basis and they just become less and less liquid," Silva said. He hasn't bought a par bond in about eight months, he said.

He doesn't like par bonds in the long end either, because if the market does improve, those par bonds are just going to trade to a short call, while a discount would have room to improve.

If the market weakens, a discount bond is going to go down just as much as a par bond, Silva said. The Benham Group runs several California funds totaling roughly $2 billion.

Andrew Jennings, senior portfolio manager at the Franklin Templeton Group, said Franklin will look at the deal. but whether it 'buys bonds will hinge On where the market is and how the deal is priced.

At roughly $12.5 billion. Franklin's California Tax Free Income Fund is the largest California fund, he said. Franklin also uses California paper in its $6.7 billion national fund, the Franklin Federal Tax-Free Income Fund, he said.

As for last week's new deals, most fared Well, traders said.

"The reason they did so well is because of the current coupon," one trader said.

The secondary market offers plenty of bonds trading at yields comparable to the new deals, but the fact that the new deals are coming with attractive current coupons is creating a lot of interest, the trader said.

"With the new de minimis rule and the slew of discounts that are flooding the street, people are looking for current coupons," he said.

In light secondary activity Friday, high-grade issues were unchanged, while dollar bonds drifted off 1/8 point.

"By and large it was a nothing day," capping what was otherwise a "brutal" week, a municipal analyst said.

In debt futures, the December municipal contract was down nearly 1/4 point to 81 15/32. Friday's December MOB spread was negative 490, compared with negative 481 on Thursday.

In the government market Friday, the 30-year bond was up 1/32, to yield 8.12%.

The 30-day supply of municipal bonds Friday totaled $3.13 billion, down $812 million from Thursday. That comprises $1,30 billion of competitive bonds, down $141 million from Thursday, and $1.834 billion of negotiated bonds, down $671 million from Thursday.

Standard & Poor's Corp.'s Blue List of Municipal Bonds was up $43.4 million yesterday, to $1.98 billion.

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