Municipals stuck to a narrow price range yesterday and trading was very light as the Labor Day weekend drew closer.

But the tone was stable with an upward bias as the credit markets continued to benefit from low inflation and a weak economy.

Prices actually opened on a weaker note, traders said, but economic indicators were released and the markets firmed, continuing the week long grind to lower yields.

According to one observer, yields have fallen over the past month from an average of 10 basis points one year out to 25 basis points from the mid-range to the end of the yield curve.

Over the last year, yields are generally down 30 basis points on the short-end and down 95 basis points on the long end.

The market firmed after The National Association of Purchasing Management said its manufacturing index slipped to 49.3% in August from 49.5% in July.

A reading above 50% generally indicates that the manufacturing sector is expanding, while a reading below 50% indicates it is contracting.

Trading remained lackluster, and some bonds managed 1/8 point gains, but the market was unchanged overall, traders said.

For example, J.P. Morgan Securities Inc. freed term bonds from $474 million University of California Regents refunding revenue bond deal priced Tuesday.

In late secondary trading, the AMBAC 5s of 2023 were quoted at 5.38% bid, 5.37% offered. They were originally priced to yield 5.38%.

In the debt futures market, the December municipal contract settled up 6/32 to 103.11. The December MOB spread was calculated at negative 476, reflecting the cheapness of the municipal market compared to Treasury bonds.

Underwriters also reported good follow-through business on new issues priced earlier in the week.

Merrill Lynch & Co., senior manager for $225 million Florida State Board of Education, public education capital outlay bonds, reported an unsold balance of $25 million.

J.P. Morgan Securities reported an unsold balance of $58 million from $474 million Regents of the University of California refunding revenue bond deal sold Tuesday.

Chemical Securities said there was an unsold balance of $5.4 million from a $150 million Metropolitan Atlanta Rapid Transit Authority sales tax revenue bond deal.

Looking ahead to supply, the number of deals continued to dwindle. The Bond Buyer calculated 30-day visible supply yesterday at $2.13 billion, down $650 million from Tuesday.

Secondary supply has moved in a narrow range. The Blue List of dealer inventory rose $13.1 million, to $1.54 billion yesterday.

Secondary trading was spotty again yesterday, traders said.

In secondary dollar bond trading, New York State Power Authority 5 1/4s of 2018 were quoted at 98 3/4-99 to yield 5.34%; Los Angeles Convention Center MBIA 5 1/8s of 2021 were quoted at 5.43% bid, 5.41% offered; and Michigan Building Authority AMBAC 5.30s of 2016 were quoted at 5.45% bid, 5.42% offered.

In short-term note trading, yields were three to five basis points lower on the day, traders said.

In late action, California Rans and Los Angeles Trans were quoted at 2.72% bid, 2.70% offered, while New York State notes were quoted at 2.50% bid, 2.45% offered.

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