Long bonds fell yesterday, but most players agreed municipals will stick to a range through an uncertain future, unless the Treasury market comes unglued.

The credit markets moved higher this week in anticipation of an ease in monetary policy by the Fed, after last Friday's unimpressive jobs report.

But the Fed failed to make a policy move yesterday as the markets hoped and Treasuries sold off throughout the session, building more downward momentum near the close.

As a result, late sellers emerged in the municipal market and the tone turned nervous.

Several traders cautioned that if the government market continued to fall, the markets could drop significantly.

"There's a 5% chance that we come unglued. And if that happens we're all going down," said the head of a major Wall Street trading desk. "When they raid the [saloon], they always arrest the piano player."

Long-term municipals fell 1/4 to 1/2 point in sympathy, although intermediate bond prices hung onto 1/4 point gains, traders said.

The weakening market combined with uncertainty generated by the presidential race and its implications for the economy and prompted some market participants to call for yields to trend significantly higher.

But others insist municipals are a comparatively attractive investment and will sheltered from drops in the Treasury market, even if the Fed fails to ease anytime soon.

"If the Fed doesn't ease, you'll hear rumors that we're in trouble, and the market will take that negatively," said James L. Kochan, head of fixed-income research at Robert W. Baird & Co.

"We might move five to 10 basis points higher in yield," Kochan said. "But we're cheap to Treasuries and that provides some immunity from disappointment in the Treasury market. All in all, it will be academic."

But inflation data will be released next week, posing another obstacle for the market. Most market players shrug the data off, predicting that inflation will continue to remain at low levels.

Market skeptics also cite the results of the presidential debates and currency wars in Europe as possible roadblocks to progress.

But most agree the market will key off supply and prices will muddle through, suffering only mild volatility.

"There's enough uncertainty and supply that the market will paddle around for a bit," said Joe Deane, vice president and managing

director at Shearson Lehman Advisors. V3

"If we get a little less uncertainty and any drop in rates in Germany

we will move to the next leg, V

although that could take awhile."

New Issues

Market sources noted that new issues priced yesterday were cheap as underwrites took a cautious approach to the shaky market.

The bulk of this week's supply is scheduled for sale during Yom Kippur. Market players noted that the

holiday could hamper the outcome V

of deals because many market players are on holiday.

In new-issue action, Merrill Lynch & Co. was scheduled to price

$450 million of Massachusetts Bay V

Transportation Authority general revenue bonds, but negative arbitrage kept the bulk of the deal on the sidelines.

Merrill Lynch did price $78 million of the loan is new money.

The offering included serials priced to yield from 3.55% in 1994 to 6.15% in 2008. A 2010 term was priced as 6s to yield 6.25%; a 2012 term was priced as 6s to yield 6.35%; and a 2022 term was priced as 6s to yield 6.40%.

The bonds are rated A by Moody's Investors Service, Standard & Poor's Corp., and Fitch Investors Service.

In other action, Lazard Freres & Co. priced $251 million of non-callable Kentucky Turnpike Authority economic development road revenue refunding bonds.

The offering included serial

bonds priced to yield from 4.20% in V

1995 to 5.95% in 2004. Zero coupon bonds were priced to yield from 5.90% in 2002 to 6.30% in 2006. A 2010 maturity, containing $111 million of the loan, was priced to yield 6.55%.

The serial portion of the deal is rated A by Moody's and Standard & Poor's and A-plus by Fitch. The zeros are insured by the Financial Guaranty Insurance Co. and Triple-A rated by Moody's Standard & Poor's, and Fitch.

Lehman Brothers as senior manager priced and repriced $195 million of revenue and refunding bonds for the Unified Sewerage Agency of Washington County, Ore.

At the repricing, Series A yields were lowered by five to 10 basis points from 1993 through 1997.

Term bond yields were lowered by five basis points in 2004; two basis points in 2010; and by three basis points in 2012.

Series One yields were lowered by five to 10 basis points from 1993 to 1997; by five basis points in 2004; and three basis points in 2012.

The final offering included $115 million Series A senior lien sewer revenue and refunding bonds priced to yield from 2.85% in 1993 to 5.50% in 2002.

A 2004 term was priced with a coupon to 5.70 at par; a 2006 term was priced as 5.90s to yield 5.95%; a 2010 term was priced as 6.20s to yield 6.23%; and, a 2012 term was priced as 6 1/8s to yield 6.17%.

Zero coupon bonds were priced to yield 5.7% in 2003, 5.90% in 2005, and 6.10% in 2007.

There also was $80 million Series One subordinate lien sewer revenue bonds, priced to yield from 2.85% in 1993 to 6.10% in 2008, and 6.17% in 2012.

The issue is insured by the V3

AMBAC Indemnity Corp. and triple-A rated by Moody's, Standard & Poor's, and Fitch.

The First Boston Corp. priced and repriced $177 million Nebraska Public Power District nuclear facility revenue bonds.

At the pricing, the 1994 yield was raised by 10 basis points, the 2001 yield was lowered by five basis points, and the 2004 yield was raised by five basis points.

The final scale included serial bonds priced to yield from 2.80% in 1993 to 5.80% in 2004.

The issue is rated A1 by Moody's and A-plus by Standard & Poor's.

Activity was limited in the competitive sector, dominated by the sale of $115 million Montgomery County, Md., unlimited tax consolidated public improvement bonds.

The offering included serials only, period to yield from 2.75% in 1993to 6% in 2012. Bonds from 1993 through 1997 were not formally reoffered to investors.

The issue is rated triple-A by Moody's and Standard & Poor's.

Secondary Markets

Long municipal bond prices fell 3/8 to 1/2 point yesterday, but intermediate range bond prices hung onto 1/4 point gains, traders said.

In the debt futures market, the December municipal contract settled down 18/32 to 96.01. The December MOB spread narrowed to negative 283 from negative 293 Monday.

Traders noted that the December contract has been supported by MOB spread buyers who could give up positions due to overall weakness. MOB sellers would result in further losses in futures prices.

Traders reported bid-wanted lists totaling about $150 million to $200 million. But sellers emerged late in the day, offering blocks of bonds in the $3 million to $5 million range, traders said.

In secondary dollar bond trading, prices were quoted down 1/4 to 1/2 point lower on the day.

In late trading, the Puerto Rico Electric Power Agency 6 1/4s of 2017 were quoted at 97 1/2-5/8, to yield approximately 6.45 on the bid-side; Washington Public Power Supply System 6 1/2s of 2015 were quoted at 98 3/4-99, to yield 6.606%; and Puerto Rico GO 6s of 2014 were quoted at 95 1/4-3/4, to yield 6.407%.

New York City Water Authority 6s of 2017 were quoted at 92 3/4-93 1/4, to yield 6.59%; Denver Airport Authority AMT 6 3/4s of 2022 were quoted at 95 1/2-96, to yield 7.115%; and Los Angeles Department of Water and Power 6s of 2032 were quoted at 95 1/2-96, to yield 6.309%. Florida Board of Education 6s of 2025 were quoted at 95 7/8-96 1/4, to yield 6.298%.

In the short-term note market yields were unchanged to as much as 10 basis points higher on the day, traders said.

In late action, Los Angeles Trans were quoted at 2.55% bid, 2.50% offered; Texas Trans were quoted at 2.58% bid, 2.55% offered; and New York State Trans were quoted at 2.65% bid, 2.60% offered.

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