Municipal bond prices lost a point yesterday, after being off by nearly the same amount Tuesday.

"We're getting killed," said one municipal trader, adding: "Intermediates are getting absolutely crushed."

Bonds in the intermediate range have seen their bid-asked spreads to widen out by as much as 1 1/2 points in some instances, he said.

"It really is as wide as it has been in a long time," the trader added.

While selling by bond funds was not continuing on the grand scale that took place last week and Monday, paper is weighing heavy on the Street, the trader said.

"Everybody is up to their gunnels in inventory, and we don't have the hedging vehicle that we should have to hedge it," he said, adding that the municipal contract has grown extremely cheap.

Players who have to lighten their liabilities are reluctant to let their municipal cash go at such depressed levels, so they sell the municipal contract instead, the trader said. That selling drives the contract down, which reduces its use as a hedging tool for the cash market, he added.

A municipal analyst said dollar bonds lost 1 1/4 points yesterday, while yields on high-grade issues rose by eight basis points overall, and more on the long end. While there were some bid lists, activity overall was quiet, he said.

In debt futures, the December municipal contract settled down 22/32s to 83.06. Yesterday's December MOB spread was negative 444 compared with negative 429 on Tuesday.

In the government market, the 30year bond ended down 13/32 to yield 8.09%, after being down by roughly half a point early in the day. The long bond recovered on U.S. intervention to shore up the dollar.

"As the dollar continued to plummet, and set a new post World War II low against the Japanese currency, it took the Treasury market down with it," said Kevin Flanagan, a vice president and financial economist at Dean Witter Reynolds Inc.

"I think it had gotten down to the point where the Treasury deemed it was time to come in and defend the U.S. currency, and I think that surprised a lot of investors [in] the foreign exchange arena," Flanagan said.

"I think them were a lot of shorts set up," Flanagan added, "so there was some scrambling to cover those positions that helped to bring our market back a little bit."

The dollar's weakness reflects the continuing U.S. trade deficit, as well as European investors' sentiment that the Fed has fallen behind the curve in the battle against inflation, Flanagan said.

"I think it just continues to be a weak currency, the weak sister out there among the major industrialized countries," he said, adding that a feeling also persists that the Clinton Administration is using the weak dollar as a weapon in the trade war against Japan.

Recently it was announced that the U.S. and Japan had failed to reach agreement regarding flat glass, an area where it was hoped an agreement could be reached, Flanagan said.

Flanagan said it remains to be seen how other nations react to the U.S. move. Japan may fear that its currency is getting too strong, and may also take action that would help the dollar. It also remains to be seen what the European nations do, he said.

"The Europeans feel it's not in their best interest to defend the U.S. dollar when the U.S. is only giving a halfhearted effort at doing that," he said.

Flanagan said, however, that yesterday's move was a shrewd one by the Treasury and the Fed that caught everyone off guard.

"So far it worked, but I think if you don't get any follow- through, foreign exchange investors [and] traders will be back in testing the Fed's mettle," he said.

The continued slide in municipal bond prices prompted senior manager Goldman, Sachs & Co. to further delay pricing a $189.7 million New York State Medical Care Facilities Finance Agency offering, which was originally scheduled to be priced Tuesday.

"It's just that with the market continuing to fade, we basically decided to put it on hold," a Goldman Sachs underwriting source said.

The 30-day visible supply of municipal bonds yesterday totaled $3.35 billion, down $313.9 million from Tuesday. That comprises $1.478 billion of competitive bonds, down $321.9 million from Tuesday, and $1.868 billion of negotiated bonds, up $8.1 million from Tuesday.

Standard & Poor's Corp.'s Blue List of municipal bonds was up $91.2 million yesterday to $2.24 billion.

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