Favorable economic news lifted Treasuries yesterday, while tax-exempts, though moving higher, failed to keep pace.

"We lagged Treasuries a little bit," one trader said, judging municipal cash 1/4 to 3/8 points higher. "I just think that customer cash flows have slowed."

A municipal analyst, however, said cash continues to be around and attributed yesterday's lagging pace to uncertainty.

"We've just got ourselves in a day of the dol-drums," he said. He pegged the dollar bonds up 1/8 to 1/4 point and high-grade issues unchanged overall in light action.

Yields on lesser quality high-grades rose about three basis points in the intermediate range. The analyst also cited bid lists totaling roughly $300 million.

The September municipal contract settled nearly 3/4 points higher yesterday at 93 23/32s. "Definitely, the cash market is lagging the contract," a trader said. Yesterday's September MOB spread was negative 385, unchanged from Monday.

The 30-year Treasury bond ended up 1/2 point to yield 7.30% following bond-friendly news on inflation and consumer spending patterns.

The May consumer price index came as expected, showing a 0.2% rise in the overall rate, and a 0.3% rise in the core rate, which excludes food and energy. Also, retail sales dropped 0.2% in May.

New Issues

Turning to the primary market, a Bear, Stearns & Co. group won approximately $470 million Commonwealth of Pennsylvania full faith and credit general obligation bonds, biding a true interest cost of 5.3554%. CS First Boston had the cover bid with a TIC of 5.3619%.

An underwriting source said late yesterday that the offering, which had been increased from $355 million on Monday, could now be pared from $470 million "because of the nature of the refunding."

The offering contained current interest bonds reoffered to investors at yields ranging from 3.65 in 1995 to 5.55% in 2007. Maturities from 2008 to 2014 were not formally reoffered. The deal also contained capital appreciation bonds maturing in 2003 and 2004, which were also not formally reoffered.

Moody's Investors Service assigned an underlying rating of A1, while Standard & Poor's Corp. assigned an AA-minus rating. The 1999 to 2010 as well as the 2013 and 2014 maturities are MBIA insured.

While he did not purchase any of the bonds, Reid Smith, an assistant vice president and portfolio manager at the Vanguard Group of Investment Cos., observed that the longer portion of Pennsylvania's deal "looked fair to attractive." The $1.4 billion Pennsylvania fund is the largest of three totaling roughly $3 billion that Smith manages.

Smith said he abstained because he's taking a largely "neutral" approach to buying municipals these days. "Recent appreciation in municipals has removed some of their cheapness relative to Treasuries," he said. Smith said he's waiting for additional supply to provide more opportunity.

He added that where Pennsylvania is concerned yesterday's general obligation deal "looked attractive" compared to the state's revenue bonds.

Smith said, however, he does make occasional exceptions. For instance, yesterday he bought some of the $150 million Los Angeles, Calif., waste water system revenue bonds for a new California insured intermediate fund Vanguard started March 4. Smith said he found the premium] coupon structure in the serials attractive.

Smith added that new funds tend to receive greater shareholder cash flow. He also cited enhanced investor interest in the intermediate sector.

A Lehman Brothers group won the Los Angeles offering with a true interest cost of 6.0336%. Serial bonds were reoffered to investors at yields ranging from 3.50% in 1995 to 5.70% in 2008. A 2024 term, containing $114 million, was priced to yield 6.05%.

In other news, secondary supply rose for the third straight day yesterday with Standard & Poor's Blue List increasing $73 million, to $1.68 billion. The measure of dealer inventories has jumped $267 million higher since June 9, when inventories were $1.41 billion.

The 30-day visible supply for today totals $4.277 billion, down $554.2 million from yesterday. That comprises $1.409 billion of competitive bonds, down $679.6 million from yesterday, and $2.868 billion of negotiated bonds, up $125.4 million from yesterday.

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