Municipal bonds finished Friday up as much as 1/4 point, as the market continued to master the heavy supply that has been tacked on to the end of the year.

Early in the afternoon, Standard & Poor's Corp. announced the lowering of California's general obligation bond rating to AA from AAA, but market sources said little trading took place as a result. Prices fell as much as 1/4.

The downgrade, which Standard & Poor's attributed to "chronic deficit operations," affected $15.1 billion of the state's outstanding debt.

The state's 6 1/4S of 2005 had traded at 99 5/8-7/8 before the rating change. In the wake of the announcement, the bonds traded down to 99 1/2-3/4, a source said.

The price change was small, traders said, because the market had already taken the state's deteriorating credit quality into consideration.

Friday capped a week when Wall Street funneled large quantities of new issues to permanent holders, industry sources said.

"We clearly cleaned out a lot of syndicates and put away a lot of bonds," one trader said.

In the primary sector, a Lazard Freres & Co. syndicate priced $139.46 million of lease-revenue bonds late Thursday to help finance a $1 billion airplaine maintenance facility for United Airlines in Indianapolis.

The bonds, which were rated A1 by Moody's Investors Service and not rated by Standard & Poor's Corp., were priced Thursday with a maximum yield of 7.093% on the deal's 2017 term bond. The borrowing was also structured to include $60 million of capital appreciation bonds, which yielded from 7% in 2003 to 7.20% in 2010. Other bonds, including $700 million backed by the airline's lease, are expected to be sold by the Indianapolis Airport Authority starting late next year.

Friday's Market

In the secondary market, last week was a week when the tables turned in favor of the sellers, after many sessions when profuse supply gave purchasers an edge.

"Customers have had their way for the last two weeks, with this supply," a market source said Friday. "Today, we're seeing the end of supply and we're seeing a lot of people with money to invest. Today, it's a seller's market."

The 30-day visible supply of municipal bonds totaled $2.63 billion, including $477.1 million of competitive offerings and $2.16 billion of negotiated deals. The Blue List total of dealer inventory fell slightly to stand at $1.52 billion.

Pre-funded New Jersey Turnpike Authority 7.20s of 2018 were quoted at 106 3/8-1/2, up 1/4 point. New York and New Jersey Port Authority 6 1/2s of 2006 were changing hands at 96 1/4-1/2, up 1/4 point.

In the short-term tax-exempt market, top-rated Los Angeles Trans were trading at 3.57% bid and 3.50% offered. Texas Trans were quoted slightly better, at 3.55%-3.50%.

New York City Rans were quoted at 5.10%-5.00%, while New York State Trans were at 4.95%-4.80%. Prime commercial paper stood at 4.10% compared with 4% yesterday.

In the debt futures market, the March municipal contract was quoted down 3/32 at 94 26/32. The MOB spread for June 1992 futures contracts stood at minus-181, compared with minus-194 Thursday.

Looking ahead, this week's negotiaged calendar includes some $2 billion of deals, among them offerings from California, New Jersey, and New York. New York City will dump the heaviest load of debt on the market -- a $985 million GO package -- through a Bear, Stearns syndicate.

Last week the deal was tentatively divided into a $781.8 million portion of fixed-rate bonds and a $203.2 million of package of adjustable-rate bonds. Letters of credit on the variable-rate securities will be provided by Morgan Guaranty Trust Co. of New York, which will shoulder $33 million of the deal; and by the New York branches of the following banks: Fuji Bank, with $46.6 million; Industrial Bank of Japan, with $31.9 million; and Sumitomo Bank, with $91.7 million. The deal represents the first under new state laws that allows the city to use variable-rate debt.

In other New York action, Bear, Stearns this week will head a group pricing the Metropolitan Transportation Authority's $191.7 million offering of transit facilities debt on Tuesday.

New Jersey's Union County, meanwhile, has a $258 million tax-exempt piece and a $22 million taxable chunk of solid waste revenue bonds scheduled for pricing sometime during the week.

In West Coast primary market action, a syndicate headed by Praeger, McCarthy & Lewis is expected to price $144 million of revenue debt for the California Educational Facilities Authority this week, when the state's public works board will also tap the municipal market for $38.5 million through a Dean Witter Reynolds group.

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