Municipals added 1/4 to 1/2 point yesterday aided by Treasury market gains on lower commodities prices and a stronger dollar.

"It's all Treasuries right now," one trader said.

Dollar bonds ended 3/8 points higher, while yields on high-grade issues fell three basis points overall. Activity was quiet and light, a municipal analyst said.

Yesterday's June MOB spread was negative 402, compared to negative 406 on Monday. In debt futures, the June municipal contract closed up 5/8 point to 91 18/32

The Treasury's 30-year bond ended up more than 3/8s to yield 7.39% as the Commodities Research Bureau's index fell 3.67 points to 234.69. The fall followed a gain of more than 4 1/2 points on Monday. The dollar closed at 104.60 Japanese yen.

"The dollar still has maintained its firm tone against both the German mark and the Japanese yen," said John Lonski, senior economist with Moody's Investors Service. He said that while the government's 30-year benchmark ended higher, the long bond was unable to preserve the full point gain it achieved earlier in the day.

"What we're observing today is a manifestation of the credit market's bearish tone," Lonski said. He also pointed to yesterday's "lackluster" two-year Treasury note auction.

"The bland tone of the two-year note auction does not enhance the prospects of the more interest sensitive five-years note," Lonski said, referring to today's auction.

As for municipals, Lonski said they continue to trade at a relatively high percentage of Treasury yields. "I still think there's value in municipal securities that has yet to be tapped by the market," Lonski said.

A municipal trader said of yesterday's market, "There's buying and selling going on in this range." He added that it would not hurt for the market to stay in this range for a week or so and get some business done.

The trader said that with the Memorial Day holiday ahead, "I think the week will be over at lunchtime on Thursday."

Another trader said that considering the holiday, a lackluster five-year Treasury note auction today could lead players either to do nothing or sell.

George D. Friedlander, a managing director and fixed income strategist for Smith Barney Shearson, said that despite yesterday's gains the municipal market remains volatile.

"It's still a very skittish environment," Friedlander said. While the market got a boost from last week's Federal Reserve tightening of monetary policy, "We got beaten up with everybody else a bit [Monday]," he said.

Friedlander also noted that the shortage of new issues is making current coupon paper harder to find in some states, especially high-tax specialty states.

"Current coupon paper is getting very tight," he said. Discount bonds have fallen out of favor lately because the market's decline has brought into play a federal tax rule covering the taxation of bonds trading at a discount to face value.

Record keeping requirements and confusion over how to value the discount bonds just makes current coupon issues "an easier sell," Friedlander said.

Skyway Bond Priced

A group led by PaineWebber Inc. priced $106 million of refunding revenue bonds for the Chicago-Calumet Skyway yesterday.

The issue ends a 31-year default of skyway bonds. Proceeds will be used to redeem $90.2 million of outstanding bonds due to mature on Jan. 1

The issue was priced with three terms. The yield was 6.95% on $33.1 million of bonds maturing in 2010, 7% on $37.7 million of bonds maturing in 2014, and 7.09% on $35.5 million of bonds maturing in 2017.

The issue, which was oversubscribed in all three maturities, was initially priced with a 7.15% yield in the 2017 maturity.

Walter Knorr, Chicago's comptroller, said the deal was priced "right on target with expectations."

While Chicago had been exploring insurance for the skyway bonds, they were sold unenhanced, with ratings of Baa from Moody's Investors Service, BBB from Fitch Investors Service, and BBB-minus from Standard & Poor's Corp.

Knorr said insurers wanted to see one or two more years of positive traffic and revenue patterns on the 7.8-mile toll road that connects the southeast side of Chicago with the northwest corner of Indiana.

The city's traffic engineer reported traffic growth of 5.1% over the last five years and revenue growth of 8.8% a year during that time. The original skyway bonds, which were sold in the 1950s, went into default in 1963 when revenues failed to meet interest payments due to insufficient traffic.

A PaineWebber underwriter said the skyway's history of default stopped about a half a dozen institutional buyers from considering the issue.

The underwriter said that "99%" of the major buyers were institutions, including an institution that currently holds some of the outstanding defaulted bonds. "That was a good vote of confidence for the deal," the underwriter said.

Alex Rorke, a first vice president at PaineWebber, said the strong institutional interest was also "a vote of confidence in the future of the skyway."

Also yesterday from Chicago, the Metropolitan Pier and Exposition Authority came to market with a refunding and new money issue of $196 million.

Smith Barney Shearson led a group of 28 firms in pricing the issue, which included about $92 million of current interest bonds, $63.9 million of capital appreciation bonds, and $10.9 million of deferred interest bonds.

The current interest bonds were priced with a yield of 6.45% in 2027, the zero-coupon capital appreciation bonds had a maximum yield of 6.7%, and the deferred interest bonds had a yield of 6.45% on the long end, according to Smith Barney officials.

R. Ray Kljajic, a managing director at Smith Barney, said a plan to include $29 million of the firm's version of inverse floaters, called Auction and Inverse Rate Securities, was scrapped due to market conditions.

The issue was insured by MBIA and FGIC.

The issue refunded some of the $879 million of bonds sold by the authority in 1992 to expand the McCormick Place convention center in Chicago. The 1992 deal became controversial because it failed to meet a goal of 30% participation by minority and woman-owned firms.

For the new bond issue, authority officials made it clear they wanted the goal met. In yesterday's deal, which included most of the firms from the 1992 issue, Smith Barney set up rules giving net designated orders top priority. The rules also required institutional orders to designate at least three firms, including one minority or woman-owned firm, to receive sales commission.

Under the rules, each firm designated will receive a minimum of 10% or maximum of 50% of the order and a portion of the sales commission will be pooled and allocated to firms owned by minorities and women based on performance.

Authority official have said they are confident the 30% goal will be met this time. The officials could not be reached for comment yesterday. Kljajic said Smith Barney expects to report to the authority on Friday that the goal was reached. He said that exact designations of bonds may not be known for two to three weeks.

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