Wednesday's rally, yields on The Bond Buyer's indexes remained in a holding pattern, little changed from a week ago. The 20-bond and 11-bond indexes of general obligation yields were both down one basis point from the previous Thursday. The 20-bond index fell to 6.21% from 6.22%; the 11-bond index to 6.13% from 6.14%.

The revenue bond index increased one basis point, to 6.46% from 6.45% a week earlier.

The average yield to maturity of the 40 bonds used in the daily Municipal Bond Index, most of which are revenue bonds, rose two basis points, to 6.40% from 6.38% last Thursday.

Since July, the players have not had enough faith in the market to produce any significant movement, and they have pretty much kept tax-exempt prices frozen. Since the week ended July 7, the net change in the 20-bond index has been minus a single basis point.

The municipal and government markets rallied on Wednesday following the Commerce Department's report on July durable goods orders. The rally continued on a solid five-year Treasury note auction later that afternoon.

The Commerce Department reported that durable goods orders dropped 4.2% in July, the first decline in five months and the largest since the 5.4% fall in December 1991. Half the decline was attributed to summer shutdowns at automakers' plants, the department said. Analysts had expected a 0.3% gain.

The rally proved short-lived. By early yesterday afternoon, the municipal market had taken another dive in sympathy with Treasuries, giving back whatever gains had been made on Wednesday.

The yield on the Treasury's bellwether 30-year bond rose five basis points to 7.54% yesterday from 7.49% a week ago, The long-bond had closed Wednesday's session at a yield of 7.45%

"There was substantial short-covering yesterday," the head of a major investment firm said. "There was also an overreaction in the market yesterday. The government [futures] contract moved past 103, ran into a stonewall, and then backed off. The markets returned to their usual stance, which is defensive."

"With this kind of market," a trader with a major New York-based firm said, "I've had to be as much as five basis points more aggressive than I'd normally be on certain issues if I want to make any money."

A lack of supply has also helped to keep the municipal markets steady, a market analyst noted. The Bond Buyer's 30-day visible supply was at $2.46 billion yesterday, a drop of $1.81 billion from the previous Thursday's $4.27 billion. The 30-day visible supply has been less than $5 billion for 26 straight days and on 102 occasions so' far this year. In all of 1993, it was under $5 billion 78 times.

Another player said the markets will probably trade in a narrow range into next week as they take a look at uncertainty over short-term interest rates, the volatile dollar, and next week's economic reports.

"With the bond and the contract dead flat, there's not much incentive to move forward," he said.

On the short end, The Bond Buyer's one-year note index was down seven basis points on Wednesday to 4.05% from 4.12% the previous week.

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