Investors continued to flock to the tax-exempt new-issue market yesterday giving a warm reception for $793.1 million New York City bonds and $4.1 billion California notes and enabling underwriters to lower the yields on the issues as much as 10 basis points.

In the meantime, prices in the secondary market got a boost from a 25 basis-point cut in the federal funds rate and solid gains in the government securities sector. Dollar bonds closed 1/8 to 1/4 point higher on the day, but note prices gained enough to slash yields 15 basis points.

The New York City offering reached the market through an underwriting syndicate led by Merrill Lynch & Co. Not only were underwriters able to reduce yields on the issue because of the strong investor support, but they also were able to increase the size of the tax-exempt segment of the offering by $50 million, to $749.5 million. The amount of taxable bonds stayed at $43.6 million.

Yields on the New York City offering ran from 6.40% in 1993 to 7.95% in 2005, 8% for the group A bonds maturing 2006-11, 8.10% for the group B bonds maturing 2012-17, and 8.10% for the group C bonds maturing 2018-21.

There were also $45 million tax-exempt capital appreciation bonds with a maturity value of $89 million returning 7.70% in 1999, 7.75% in 2000, and 7.80% in 2001.

This is the first offering of zero coupon bonds by New York City, under recent legislation authorizing New York State localities to issue them. "This is an important milestone in the city's financial history," said Comptroller Elizabeth Holtzman. "Zero coupon bonds give the city flexibility and save it money on interest costs, which is important during these tough times," she added.

The taxable portion of the offering was priced to yield 9.78% in 1996, and 10.90% in 2010 and 2011. There were also $3.6 million of taxable capital appreciation bonds with a maturity value of $10 million yielding 10.36% in 2001.

Yields on yesterday's long New York City maturities came in 45 basis points lower than those for comparable maturities at its last sale in June of this year.

New York City's general obligation bonds are rated A-minus by Standard & Poor's Corp. and Baal by Moody's Investors Service.

Dennis J. Boyle, managing director in municipal markets at Merrill Lynch, said that yesterday's offering attracted the "widest representation of institutions in a long time." He also cited the various meetings between underwriters, city officials, and investors at various key cites as having a significant impact. The easing by the Federal Reserve "didn't hurt" either, he added.

The institutions, especially the managed bond funds, were the big buyers for the group A, group B, and group C maturities, Mr. Boyle noted, but pointed out that there was also "great retail demand for the shorter maturities."

The California revenue anticipation notes were tentatively priced first thing yesterday and were off to a good start even before the Federal Reserve made its market entry to add funds by executing overnight system repurchase agreements when federal funds wre trading at 5 3/4%. The combination of strong investor interest and lower short-term rates prompted senior manager Lehman Brothers to reduce the return on $2.1 billion fixed rate series B notes by 10 basis points and shave the return on $1 billion series A notes by five basis points.

At the final pricing, the series B issue returned investors 4.75% at its June 30, 1992 maturity for a 5 1/4% interest rate, and the series A issue yielded 4.65% at its March 17, 1992 maturity for a 5 1/4% interest rate.

The offering also included $1 billion various variable rate demand notes with the dailies priced at par with an initial rate of 3.85% and the weeklies priced at par with an initial rate of 4.25%. Both the dailies and weeklies have a final maturity of March 3, 1992.

The notes are rated MIG-1 by Moody's, SP1-plus by Standard & Poor's, and F1-plus by Fitch Investors Service.

Kathleen Brown, California's treasurer, attributed some of the note issues success to a "strong presale effort geared for retail investors." Retail presale hit $1.1 billion and helped the state in its institutional marketing, as well, Ms. Brown added.

An officer at Lehman Brothers said late yesterday that there was a "tremendous cross-section of buyers, including corporations, tax exempt money and bond funds, investment advisers, and bant trust departments." The strong demand enabled the account to reduce the yields five and 10 basis points on the series A and series B issues, respectively, he added.

In other new-issue activity, a Smith Barney, Haris Upham & Co. account priced two more parts of the Regional Convention and Sports Complex Authority offering.

The $133.5 million State of Missouri-sponsored series A issue (payable from annually renewable lease payments to be made by the state) was tentatively priced to yield from 4.90% in 1992 to 6.80% in 2006, 6.90% for $21.2 million term bonds of 2011, and 7% for $70.6 million term bonds of 2021.

The $66.2 million St. Louis County-sponsored series B issue was tentaively priced to yield from 5.10% in 1992 to 7% in 2006, 7.10% for $10.4 million term bonds of 2011, and 7.20% for $35.1 million term bonds of 2021.

The state-sponsored issue is rated A1 by Moody's, A-plus by Moody's, and AA by Fitch. The county-sponsored issue is rated A by Moody's. BBB-plus by Standard & Poor's, and A-plus by Fitch.

The $60 million City of St. Louis-sponsored series C issue, tentatively priced on Monday, was repriced yesterday and now includes $10.6 million terms of 2001 priced at par to yield 7.75% and $49.4 million terms of 2021 priced at 97 as 7.90s to yield 8.169%.

In the competitive market, a Goldman, Sachs & Co. account won $115 million Colorado River Municipal Water District, Tex., water system revenue bond issue.

All but $6.6 million of the issue, due 2000-02, is backed by AMBAC Indemnity Corp. and rated triple-A by Moody's and Standard & Poor's. The uninsured bonds carry A ratings from both.

The offering carried a maximum yield of 6.894% for $64 million term bonds of 2021 priced at 96 5/8 as 6 5/8. There was a serial balance of $1.3 million in the 1997 and 1998 maturities.

The 2021 term maturity was freed from syndicate restrictions and quoted in the free market at 96 1/4-3/8 to yield 6.91%.

In secondary dollar bond trading, Florida State Board of Education 7 1/4s of 2023 moved up 1/4 point to 103 1.4-1/2 to yield 6.83% to the 2004 par call. The more recent 6 3/4s of 2021 were locked at 98 3/4 to yield 6.85%.

New Jersey Turnpike Authority 7.20s of 2018 gained 1/8 to 103 1/8-1/2 to yield 6.59% to the 1999 par call and 6.61% to the premium call in 1993.

In secondary note trading, New York City tax anticipation notes were quoted late in the day at 4.75% bid, 4.70% offered. New York tax and revenue anticipation notes were at 5.09% bid, 5.07% offered. And New Jersey notes were at 4.65% bid, 4.60% offered.

Connecticut Note Rating

Standard & Poor's Corp. yesterday assigned its highest rating to Connecticut's $319.35 million bond anticipation note sale, but at the same time said the outlook for the rating is uncertain. The notes are scheduled for sale today.

Fitch Investors Service, meanwhile, yesterday assigned its highest rating of F1-plus, without casting a shadow of uncertainty over the Ban sale.

Due to doubts over the fate of Connecticut's fiscal 1992 budget, Standard & Poor's put the note rating -- SP1-plus -- on Creditwatch with negative implications. The agency also placed on Creditwatch the outstanding $750 million of general obligation commercial paper rating, which is A1.

Connecticut's AA GO rating has been on Creditwatch since February. A Standard & Poor's official yesterday said that if the state slips below that level, the Ban rating "could likewise drop."

Gov. Lowell P. Weicker is currently reviewing a budget forwarded to him by the General Assembly. The plan does not include the state's first ever income tax, which the governor has fought for, but market sources speculate that he will allow the budget to become law by neither signing it nor vetoing it.

If Gov. Weicker takes no action by Friday, according to an official in the state treasurer's office, the Assembly Bill will become law.

Negotiated Pricings

Macon-Bibb County Hospital Authority, Ga., $45 million revenue anticipation certificates, series 1991 (Medical Center of Central Georgia).

Ratings: Moody's Aaa; S&P's AAA. FGIC insured.

The offering is expected to be comprised of $10.3 million term bonds of 2014 priced at 99 1/2 as 7s to yield 7.04%, $13.1 million term bonds of 2011 offered at 97 3/4 as 6 3/4 to yield 6.96%, and serials offered at par and scaled from 5% in 1992 to 6.90% in 2006.

Trust Company Bank and Robinson-Humphrey Co. are co-managers. The official award is expected tomorrow.

Bellevue Convention Center Authority (King County), Wash., $29.4 million special obligation revenue bonds.

Ratings: Moddy's Aa1 (expected); S&P's AA (expected).

The $7.2 million current interest bonds are tentatively priced at par to yield 7.10% in 2019.

The $22.2 million capital appreciation bonds are being offered at deep discounts to yield from 5.90% in 1995 to 7.10% in 2019.

The bonds are being marketed through an account co-managed by Smith Barney, Harris Upham & Co. and Lehman Brothers. The formal award is expected today.

Dunedin, Fla., $27.5 million hospital revenie bonds, series 1991 (Mease Health Care).

Ratings: Moody's Aaa; S&P's AAA. MBIA insured.

Serial yields are expected to run from 6.30% in 2000 to 6.60% in 2003. The $5.3 million term bonds of 2009 are tentatively priced at 98.454 as 6 3/4s to yield 6.90%. The $19.6 million term bonds of 2021 are being offered at 97.481 as 6 3/4s to yield 6.95%.

The issue is being negotiated by an account co-managed by Merrill Lynch & Co. and Smith Barney, Harris Upham & Co. The written award is expected tomorrow.

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