Municipal prices significantly lagged the Treasury sector's gains Friday, but the market is still in good shape at- the current levels and new issues will fuel activity, traders said.

The markets dipped on inflation data last Thursday, but the Treasury market roared back from those losses Friday, buoyed by a 2.2% drop in housing starts, leaving municipals unchanged to 1/8 point higher on the day.

"The market hasn't changed much on the week, despite the volatility," one trader said. "People are likely to hang in here for a while. If you want to buy here, you have to pay the price. If not, you just sit back and watch."

All but one of The Bond Buyer's indexes posted minute increases on the week. The 20-bond index hit 6.67% Friday, one basis point higher on the week, while the 11-bond index rose two basis points, to 6.54%.

The revenue index rose one basis point, to 6.91%, while the 40-bond index fell three basis points, to 6.86%.

The market has consistently rallied on supply, and the calendar has increased this week after a two-week rest.

Long term sales this week total $2.9 billion, up from last week's $1.57 billion mark.

The Bond Buyer's 30-day visible supply jumped $317 million Friday, to $3.8 billion.

The long-term negotiated and competitive calendars, as well as the short-term slate, feature sizable issues this week.

The negotiated sector is dominated by $300 million of Massachusetts Water Resources Authority general revenues bonds, to be priced by Goldman, Sachs & Co.; $200 million of "Build Illinois" sales tax revenues bonds, to be priced by Dean Witter Reynolds Inc.; and $120 million of New Hampshire Housing Finance Authority housing revenue bonds, to be priced by Lehman Brothers.

The competitive slate is dominated by $158 million of Missouri general obligation bonds; $100 million of Los Angeles Department of Water and Power, Calif., revenue bonds; and $80 million of Pinellas Co., Fla., revenue bonds.

The short-term sector features $325 million of Connecticut Series B economic recovery notes, to be priced by Bear, Stearns & Co.

Friday's Market

Activity was brisk during the morning session, but tapered off in the afternoon ahead of the weekend.

In light activity in the primary sector, Smith Barney, Harris Upham & Co., senior manager for $447 million of North Eastern Municipal Power Agency power system revenue bonds, freed the issue from syndicate restrictions.

First Boston Corp., senior manager for $216 million of Georgia Municipal Electric Authority bonds, freed the issue from syndicate restrictions.

In follow-through business, Goldman, Sachs & Co. -- as senior manager for $120 million of Maryland general obligation bonds -- reported an unsold balance of $49.5 million late Friday.

In the debt futures market, the December contract settled up 9/32, to 94.19, with the December MOB spread calculated at negative 146.

In short-term note trading, yields fell as much as five basis points on the day.

In late secondary-market trading, Los Angeles Trans were quoted at 4.31% bid, 4.30% offered. Texas Trans were quoted at 4.32% bid, 4.25% offered. Pennsylvania Tans were quoted at 4.38% bid, 4.30% offered. New York City Rans were quoted at 4.92% offered.

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