Futures off big; cash also lower as players await Fed's next move.

Cash prices in the municipal bond market were off half a point Friday in thin Veterans Day trading, while futures were down a full point in an abbreviated session.

"Everybody's afraid of what the Fed is going to do [this] week, and you know we're just in the midst of a terrific bear market," one trader said.

"People are just as depressed as can be." Another trader said he expects the Federal Reserve to raise short-term rates by 50 to 75 basis points tomorrow when the policy-making Federal Open Market Marilyn Schaja, a money market economist at Donaldson, Lufkin & Jenrette Securities Corp., said the market is expecting at least a half-point increase in the federal funds rate.

"So I think with 50 there may be a little bit of disappointment overall," she said. Schaja said how the market reacts to a 50 basis-point increase will largely depend on economic reports due to arrive that day, particularly on October industrial production.

If the figures show economic strength as expected, the market would probably be disappointed with 50 basis points. If the numbers come in more favorably than expected, the market is likely to see a 50 basis-point move as sufficient, she said.

Schaja said while a one-point move would probably spark a rally, the effects of a 75 basis-point increase would be harder to judge. The outcome again would depend largely on how strong tomorrow's economic data is.

However, the economist said it's likely a move of 75 basis points would only set the market wondering when the next shoe will drop.

In light Friday trading, dollar bond prices were down 1/2 point, while yields on high-grade issues were down roughly five basis points, an analyst said. The government market was closed Friday.

"There's one bid list out today that totaled about $2.5 million bonds, a trader said." "I've not even heard of any real bids or offerings being made in the Street."

The December contract, which closed at 1 p.m..., Eastern standard time, on Friday, settled down a point to 81 10/32. The December MOB spread was negative 472 on Friday, compared with negative 457 on Thursday.

Traders, meanwhile, were preparing Friday for an influx of new deals this week. "They have to be at reasonable prices" to be placed with investors, otherwise the paper will just add to the market's inventory woes, one trader said.

Some crossover buyers, who usually buy taxable paper, came into the municipal market last week, taking advantage of depressed muni prices. However, as soon as prices started to run up a bit Wednesday and Thursday, the buyers lost interest.

"I think the second you start to run up the prices on them you lose it, so I think you've got to be reasonably priced to Treasuries to get buyers in," the trader said.

Another trader, meanwhile, said this week's new offerings may be beneficial.

"People want more current coupons, so the deals might actually help the market because they'll be current coupon," he said.

Much of what the market has to offer now is "basically deep- discount paper, which nobody really cares about."

"Guys can't move those," the trader said. "The bid side in the Street is just terrible. They're down anywhere from 10 to 15 basis points alone in cash. There's no place to go with them."

In other developments, Merrill Lynch & Co. on Friday morning freed to trade $703 million of New York City general obligation bonds. Soon after, term bonds with a 7 1/4 coupon due in 2019 were quoted at 7.67% bid, 7.60% offered. The bonds were originally priced to yield 7.55%.

Elsewhere, the 30-day visible supply of municipal bonds on Friday totaled $5.18 billion, up $507.8 million from Thursday. That comprises $2.07 billion of competitive bonds, up $14.8 million from Thursday, and $3. 105 billion of negotiated bonds, up $492.9 million from Thursday.

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