Prices made gains against supply late last week, but activity was stifled because of tomorrow's presidential election, the outcome of which will dictate price movement for the near-term, players say.

Over the past two weeks, municipals were quickly moving lower under heavy supply pressure.

Tax-exempt players all but ignored the government market, which typically leads municipals, to focus on the deluge of bonds.

Supply pressure had been building for months and finally increased to a point early last week where the Street broke formation and ran for cover.

Traders estimated municipals gave up 3 1/2 points on average for double-A rated bonds and as much as five basis points for lower-rated bonds.

Downward pressure finally eased last Thursday when some retail buying developed.

But just when the market was able to make up about 1/4 to 3/8 point by Friday, upward momentum stalled as the presidential election stole center stage.

Activity was subdued as players prepared themselves for the outcome of the election.

Market participants generally expected prices to decline on a Clinton victory and for gains to be made if Bush reclaims the White House.

But those moves were expected to be short-lived, they say, and once the political cacophony subsides, attention will return where it has been fixated for nearly two years -- on the anemic economy and national debt.

"We cleared some wood late last week, but it's all election for now," said the head of a major Wall Street-based trading desk. "But that trade will be short-lived. The economy is still in terrible shape, the refunding, and a big employment number are coming up, and all of that is much more important for the market than who the President is."

Technical pressure will also remain a big factor for the market. Supply has finally subsided somewhat. The Bond Buyer calculated 30-day visible supply at $5.7 billion Friday, although The Blue List remained at a fat $1.83 billion.

But only $4.6 billion of new bonds and notes are expected to be priced this week, which could give municipals room to move higher if the election does not interfere.

The negotiated sector features $250 million Texas Public Finance Authority general obligation refunding bonds, to be priced by Smith Barney, Harris Upham & Co.; $180 million Massachusetts Health and Educational Facilities Authority hospital revenue bonds, to be priced by Goldman, Sachs & Co.; and $118 million Tallahassee, Fla., capital improvement and refunding bonds, to be priced by First Boston Corp.

Friday's Market

Tax-exempt prices moved higher for most of the session before going to sleep soon after the government market sold off in the afternoon.

Treasury prices sold off after a large revision in August home sales, but municipals generally ignored the move, content to call it quits for the weekend break.

By session's end, prices were quoted unchanged to 1/8 point higher in spots.

In the debt futures market, the December municipal contract settled up 7/32, to 93.22.

In secondary dollar bond trading, prices were mostly unchanged, traders said.

In late action, California 6 1/4s of 2019 were quoted at 6.65% bid, 6.62% offered; New York City Water and Sewer 6 3/8s of 2022 were quoted at 94 1/4-bid to yield 6.829%; and Washington Public Power Supply System 6 1/2s of 2015 were quoted at 96 1/2-97 to yield 6.804%.

Puerto Rico GO 6s of 2014 were quoted at 91 7/8-92 1/8 to yield 6.716%; Denver Airport AMT 6 3/4s of 2022 were quoted at 92 1/2-3/4 to yield 7.375%; and New Jersey Turnpike Authority 6 1/2s of 2016 were quoted at 99 7/8-100 1/8 to yield 6.51%.

In the short-term note sector, yields were quoted unchanged to two basis points higher on the day.

In late action, notes of Los Angeles, New Jersey, Pennsylvania, and Texas were quoted at 2.77% bid, 2.75% offered. Wisconsin notes were quoted at 2.80% bid, 2.77% offered; and California Trans were quoted at 2.89% bid, 2.85% offered.

Texas Turnpike Authority

The Texas Turnpike Authority's plan to transfer control of its financially troubled Houston ship

channel bridge project to a local agency V

in a $320 million bond deal has hit another road block, officials said on Friday.

The legality of the procedure to license the project has been questioned by the authority's lawyers, who had previously said the transaction was legal.

Underwriters at Dillon Read & Co. had planned to price the deal sometime this month. The acquisition plan would have a newly agency, called the Beltway 8 Transportation Corp., issue revenue bonds to acquire control of the bridge and expand the project as part of an on-again, off-again plan to avert default of turnpike debt in 1996.

However, that plan was contingent on the ability of the Turnpike Authority to "license" the project so that the local agency would effectively control the bridge and be responsible for all of the Turnpike Authority's obligations.

The authority's general counsel, Locke, Purnell, Rain, Harrell of Dallas, has earlier said the never-used licensing procedure was legally possible.

But last week, lawyers at the firm changed their minds, according market sources familiar with the financing.

Officials at Locke Purnell, the Turnpike Authority, and the state could not be reached for comment on Friday.

However, bankers at Dillon Read said turnpike officials may now have to look to a special session of the Texas Legislature next week to pass legislation to allow for the transfer of the projects.

Whether the licensing procedure can be used would also affect a plan by Dallas County to establish a similar corporation to acquire control of the Dallas North Tollway and the Mountain Creek Lake Bridge. Officials have estimated that $400 million of revenue bonds would be needed to finance the acquisition.

New York Affirmed

Standard & Poor's Corp. on Friday affirmed its A-minus rating on $5 billion of New York State GO bonds.

The agency said in a statement that the affirmation was in response to the release of the state's mid-year financial report last week. The report said the state has a $21 million surplus so far in fiscal 1993, which ends March 31.

The rating agency said the mid-year report "does not reflect a severe current-year fiscal shortfall."

The agency said the ratings outlook is negative, as budget balance remains fragile.

"The outlook could be revised to stable if the state closes fiscal 1993 with a surplus and the fiscal 1994 budget is passed on time and once again based on realistic economic projections," Standard & Poor's said.

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