California's ability to avoid triggering automatic spending cuts earlier this month appears to have polished some tarnish off the Golden State's image ahead of today's $407 million competitive offering.

"We're seeing signs that the California economy is turning around now," said Christian Smith, who runs two California funds totaling $361 million for Prudential Investment Advisors. "They still have a lot of budgetary problems, but revenues that are coming in are higher than what they [were] projecting in the original [1995] budget." Smith noted that California's better-than-expected cash position enabled it to avoid triggering a mechanism on Nov. 15 that could have forced automatic spending cuts in the general fund.

The state's fiscal 1995 budget act required that Controller Gray Davis pull the trigger on Nov. 15 if the state's projected cash reserves for June 30, 1995 were $430 million or more below projections made last July.

A bank consortium that provided credit enhancement for the state's $4 billion of revenue anticipation warrants last July required the trigger mechanism as a condition of its participation. The RAWs mature in April 1996. A spokesman for the controller's office earlier said the trigger could still be pulled in fiscal 1996 if $2.8 billion in federal funds for illegal immigrants is not received next year.

Prudential's Smith said that while "things have turned around" for California and he plans to look at today's general obligation deal, the state is not out of the fiscal woods yet.

"They're going to have another budgetary squeeze next year but I think the credit is slowly improving," Smith said, "At the right spread we are going to buy it."

California assistant treasurer Hal Geiogue said he hopes the state's ability to avert the trigger mechanism helps the deal, and added that the overall supply of new issues remains low.

"So we're looking, I think, for a successful sale," he said.

In yesterday's session, yields on high-grade issues ended unchanged, while dollar bond prices lost 1/8 point in quiet trading, one analyst said.

In the government market, the 30-year bond ended unchanged to yield 8.12%. In debt futures, the December municipal contract ended down more than 1/8 to 81 10/32. Yesterday's December MOB spread was negative 496 compared to negative 490 on Friday.

The analyst estimated that bid lists totaled roughly $300 million. A trader also cited "a fair amount" of lists.

"It just feels like there's no business out there," the trader said. "It feels like you just have sellers and no buyers."

While municipals last week were down about five basis points, at least the market had some new issues to focus on, the trader added. Yesterday, however, a sense of dread had returned.

"I think we're grinding down to the end of a very tough year," he said. "I think the street has had its fill of this down market." While players haven't closed their books, they are treading cautiously, the trader said.

As for today's California deal, the trader said that while "it's not necessarily the greatest name that ever came down the road" it's likely to be priced attractively.

"I would imagine it would be an attractive deal after all is said and done," he said.

Looking toward next week's competitive slate, Pennsylvania is expected to sell $278 million of general obligation bonds on Nov. 29. Also that day, Georgia is expected to sell $104.8 million of general obligation bonds, while a $70 million Vermont GO deal is also scheduled. On Dec. 1, the Virginia Housing Development Authority is expected to sell $112 million of mortgage revenue bonds.

In the short-term market, New Jersey is expected tO sell $600 million of tax revenue anticipation notes on Nov. 30.

The 30-day Visible supply of municipal bonds yesterday totaled $2.87 billion, down $264.1 million from Friday. That comprises $1.67 billion of competitive bonds, up $366.7 million from Friday, and $1.20 billion of negotiated bonds, down $631 million from Friday.

Standard & Poor's Corp.'s Blue List of municipal bonds was down $63.3 million yesterday, to $1.92 billion.

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