Orange County Calif.'s bankruptcy declaration Tuesday helped knock municipals back a point to 11/2 points yesterday, rudely cutting short what many had hoped was the long-awaited supply shortage rally.

"What exacerbates the whole thing is that here we are, it looks like we are about to turn the corner, and boom you get sucked in at the top of the market," a municipal trader said. "It's really disheartening."

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