Market concern about massive forward supply and uncertainty about the future of the European monetary system contributed to the continued slump in municipal prices yesterday.

About $730 million of deals was priced, off from the roughly $1 billion of deals priced on Tuesday.

For the second day in a row, municipal investors were greeted with an early slate of favorable economic data suggesting a weak recovery.

Yesterday morning, the Federal Reserve announced that industrial production fell 0.5% in August. At the same time, the Fed reported that capacity utilization for the month also fell 0.5%, to 78.5%.

The drop in production, according to officials at the Fed, was largely due to the effects of Hurricane Andrew and strikes at several General Motors plants.

But investors shrugged off the data and instead focused on the massive municipal supply expected to come to market within the next 30 days, according to several market sources.

According to The Bond Buyer, visible supply stood at $8.64 billion. That easily outpaced Monday's 1992 high of $8.15 billion and is just shy of the all-time record of $8.89 on Nov. 13, 1985.

The negotiated sector reached a new record high yesterday, with $7.22 billion listed on the calendar.

According to market participants, concerns about supply and an unpredictable Treasury market have scared off a number of prospective issuers.

Goldman, Sachs & Co. on Tuesday postponed the pricing of $700 million of Washington Public Power Supply System refunding bonds and yesterday delayed the sale of $530 million of Ohio Water Development Authority refunding bonds, a member of Goldman's underwriting team said.

Several market participants also pointed to turmoil in European financial markets caused by the uncertainty about whether French voters will approve the Maastricht treaty this Sunday. The treaty would bring European nations a step closer to economic and political unity.

According to municipal market participants, the volatile trading overseas has played a role in the price declines of Treasury, corporate, and municipal securities.

"As an underwriter, you just don't want to bring your bonds to market in an unsteady environment," said Daniel L. Keating, senior managing director at Bear Stearns & Co. "The uncertainty about the European money situation is impacting every major market in the United States."

Mr. Keating said that municipal investors knew that forward supply would be a problem this week, but the global uncertainty was a surprise and "has caused a lot of nervousness."

The head of a municipal trading desk said, "Government securities, especially in the one- to 10-year range, have been particularly affected by the European situation. The Treasury's performance has hurt us residually."

Most participants agreed, though, that by the end of the day the municipal market came off of its lows and prices ended only 1/4 point lower.

"During the afternoon, prices started to come back a little," said a trader. "It wasn't much, but it was a little light in what has been a pretty bleak week."

Negotiated Deals

Despite the uncertain tone of the market, a few deals were priced yesterday.

Leading the way yesterday, was the pricing and repricing of $190 million of Orange County Local Transportation Authority, Calif., Measure M sales tax revenue bonds. The deal was senior managed by Lehman Brothers. At repricing, yields were lowered by 10 basis points in the shortest maturities.

The offering contains noncallable serial bonds priced to yield from 2.90% in 1993 to 6% in 2007.

There is also a term bond maturing in 2011 containing $57 million of the loan that was not formally reoffered to investors. The term bond is callable in 10 years at 102%.

Except for the 1993, 1994, and 1995 serial bonds, the issue was FGIC-insured and AAA-rated. The three uninsured bonds were rated A1 by Moody's and A-plus by Standard & Poor's.

Also priced was an issue of $106 million of Massachusetts Health and Education Facilities Authority revenue bonds, Series E Children's Hospital bonds. Goldman Sachs served as senior manager of the offering.

The loan contained serial bonds priced to yield from 3% in 1993 to 5.90% in 2005.

There were also four term bonds. The first term matures in 2009 and was priced at par, to yield 6.25%. The second term matures in 2012 and was priced as 6 1/8s, to yield 6.30%.

The third term comes due in 2016 and was priced as 6.20s, to yield 6.35%. And the fourth term matures in 2019 and was priced as 5 1/2s, to yield 6.30%.

The bonds were rated Aa by Moody's and AA by Standard & Poor's.

An issue of $71 million of Arizona Educational Loan Marketing Corp. educational loan revenue bonds was priced by a group led by Chemical Securities Inc. and Rauscher Pierce Refsnes Inc.

The deal included one section of $69 million senior series 1992 bonds, with serial bonds priced to yield from 5 1/2% in 1998 to 6.20% in 2003. There is also a term bond maturing in 2005 priced at par to yield 6.375%.

The second portion of the loan is a single-term subordinate series 1992 bond maturing in 2005 and priced at par to yield 6.675%.

Secondary Market

Secondary traders said there was little activity yesterday with prices unchanged to 1/8 point lower.

In heavily traded names, Chicago GOs AMBACs 5 7/8s of 2022 were quoted at 93 7/8-94 1/8, to yield 6.33%; Puerto Rico GOs 6s of 2014 were quoted at 95 3/8-95 1/2, to yield 6.35%; and New York City Water Authority 6s of 2017 were quoted at 94 1/8-94 3/8, to yield 6.47%.

Denver Airport Authority 6 3/4s of 2022 were quoted at 96 1/4-96 1/2, to yield 7.05%; Los Angeles Department of Water and Sewer Authority 6s of 2032 were quoted at 95 1/4-96, to yield 6.32%; Cook County, Ill., GOs 5 1/2s of 2022 were quoted at 88 3/8-5/8, to yield 6.37%; and Florida Board of Education 6s of 2025 were quoted at 96 1/4-96 1/2, to yield 6.27%.

In the short-term sector, traders said that yields were slightly higher in quiet trading.

In new short-term issues, a group led by Dain Bosworth Inc. priced $250 million of Colorado tax and revenue anticipation notes.

The notes were priced as 3 1/2s, to yield 3.15%, and were rated SP1-plus by Standard & Poor's and F-1-plus by Fitch.

In late secondary action, Los Angeles Trans were quoted at 3.12% bid, 3.08% offered; Texas Trans were quoted at 3.12% bid, 3.10% offered; Wisconsin notes were quoted at 3.12% bid, 3.05% offered; and New York State Trans were quoted at 3.15% bid, 3.10% offered.

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