Municipals were languid yesterday until a late Treasury market surge helped send tax-free prices 1/4 to 3/8 point higher.

Tax-exempts stuck to a narrow price range for most of the day as market players were content to sit on the sidelines, watching the Government market gyrate.

Treasury prices rebounded early yesterday morning after 7/8 point losses Wednesday, partly because of a rumor the Fed would ease.

The market was confident enough to ignore a rise in initial state unemployment insurance claims. Typically, the market would have sold off on such news.

But as the day wore on, Treasury gave up hopes for an ease and relinquished the gains.

The tax-free cash market was lackluster, waiting for governments to move decisively.

But near the end of the session, traders got what they were waiting for when Treasuries jumped 1/2 point.

Municipals closed up 1/4 to 3/8 point on average.

In debt futures trading, the December municipal contract settled up 19/32 to 96.04. The MOB spread narrowed to negative 261 from negative 269 Wednesday.

Market players noted that, although governments are suffering volatility related to uncertainty over a Fed ease and the presidential elections, municipals are holding steady.

"Nobody is adjusting their offering so it appears they're convinced rates will continue move lower," said one trader. "Governments are volatile, but we're just riding it out."

New Issues

New issuance, meanwhile, has been light compared to recent weeks, although the forward calendar remains heavy.

Leading issuance yesterday, Bear, Stearns & Co. priced and repriced $162 million of revenue bonds for the Southern California Rapid Transit District.

At the repricing, District A1 yields were lowered by eight to 10 basis points, while District A2 yields were raised by about five basis points from 2004 to 2006.

The final reoffering included $154 million of Special Benefit Assessment District A1 bonds priced to yield from 3.40% in 1994 to 6.20% in 2009. There also was $8 million District A2 bonds priced to yield from 3.90% in 1994 to 6.60% in 2009.

The District A1 bonds are insured by the AMBAC Indemnity Corp. and triple-A rated by Moody's Investors Service and Standard & Poor's Corp. The District A2 bonds are rated Baa by Moody's and A-minus by Standard & Poor's.

An issue of $129 million of Fort Worth, Tex., general purpose refunding bonds was tentatively priced by Smith Barney, Harris Upham & Co. as senior manager.

The offering included serial bonds priced to yield from 3.50% in 1994 to 6.10% in 2010.

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

PaineWebber Inc. tentatively priced $108 million of Illinois Student Assistance Commission student loan revenue bonds.

The offering included $35 million of Senior Series AA bonds priced at par to yield from 5.15% in 1997 to 5.90% in 2001. There also was $66 million of Senior Series BB bonds priced at par to yield from 6.10% in 2002 to 6.70% in 2010. A 2015 term was priced at par to yield 6.75%. Finally, $7 million of Series CC bonds, subject to the AMT were priced at par to yield 6.85% in 2015.

The Series BB and CC bonds are subject to the federal alternative minimum tax, except in Illinois.

The Series AA and Series BB bonds were rated Aa1 by Moody's. The agency rated the Series CC bonds A.

Smith Barney as senior manager also priced and repriced $92 million of New Jersey Health Care Facilities Financing Authority revenue bonds for the West Jersey Health System.

At the repricing, yields were lowered by five to 15 basis points from 1993 through 2004. Yields on the 2007 term and the 2012 term were lowered by about four basis points.

The final reoffering included serial bonds priced to yield from 2.75% in 1993 to 5.75% in 2004. A 2007 term was priced as 6s to yield 6.05% and a 2012 term was priced as 6 1/8s to yield 6.25%. Bonds in 2008 and 2009 were not formally reoffered to investors.

The bonds are insured by the Municipal Bond Investors Assurance Corp., and are triple-A rated by Moody's and Standard & Poor's.

In follow-through business in the competitive sector, Merrill Lynch & Co. reported an unsold balance of $4.1 million from $115 million of Montgomery County, Md., unlimited tax consolidated public improvement bonds.

Secondary Markets

Market players reported lackluster secondary activity throughout most of the session.

In secondary dollar bond trading, prices were quoted unchanged to up as much as 1/2 point, depending upon the bond.

In late trading, Puerto Rico Electric Power Agency 6 1/4s of 2017 were quoted at 97 1/2-98, to yield 6.45% on the bid-side; Washington Public Power Supply System 6 1/2s of 2015 were quoted at 99 1/8-lock, to yield 6.574%; and Puerto Rico GO 6s of 2014 were quoted at 95 3/8-3/4, to yield 6.396%.

New York City Water Authority 6s of 2017 were quoted at 93-1/4, to yield 6.576%; Denver Airport Authority AMT 6 3/4s of 2022 were quoted at 95 3/4-96, to yield 7.094%; and Los Angeles Department of Water and Power 6s of 2032 were quoted at 94 1/2-95, to yield 6.382%. Florida Board of Education 6s of 2025 were quoted at 95 1/8-1/2, to yield 6.355%.

Short-term notes were mixed on the day, traders said.

In late action, notes of Los Angeles, New Jersey, Pennsylvania, and Texas were all quoted at 2.63% bid, 2.60% offered.

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