The Bond Buyer's municipal bond indexes posted slightly lower yields this week, as a promising rally was wiped out in the turmoil generated by the investment losses of Orange County, Calif.

The 20-bond index of general obligation yields dropped two basis points, to 6.88% from 6.90% last Thursday, while the 11-bond GO index fell one basis point, to 6.78% from 6.79% a week ago.

The 30-year revenue bond index slipped one basis point, to 7.17% yesterday from 7.18% a week ago.

The weekly indexes reached their lowest levels since Nov. 3, when the 20-bond index was 6.83%, the 11-bond index was 6.72%, and the revenue index 7.16%.

The average yield to maturity of the 40 bonds used in calculating the daily Municipal Bond Index dropped three basis points on the week, to 7.08% yesterday from 7.11% last Thursday. The yield had dropped as low as 6.92% Tuesday, which was the lowest it had been since Oct. 31, when it was 6.85%.

While the developing crisis over Orange County's investment pool attracted much of the municipal market's attention this week, it did not affect bond prices Friday, Monday, or Tuesday. Prices rose 3/4 to one point Friday, despite reports of a robust economy, as they followed the wake of rallies in Municipal Bond Index futures and U.S. Treasury securities. A lack of new-issue supply and rising demand pushed prices up 1/4 point Monday and 3/4 point Tuesday.

This promising rally was cut short Wednesday, however, when Orange County announced it would seek Chapter 9 bankruptcy protection. Prices plunged one to 1 1/2 Points Wednesday and 1/2 Point more by yesterday afternoon, wiping out nearly all of the previous three days' gains.

U.S. government securities, which were not affected by the Orange County turmoil, substantially outperformed municipals this week. The yield on the bell-wether 30-year Treasury bond declined 15 basis points, to 7.85% from 8.00% last Thursday. The short end of the municipal market closed virtually unchanged from a week ago, as the Bond Buyer's one-year note index dipped one basis point, to 4.60% from 4.61% last Wednesday. Last week's figure was the highest for the index since Oct. 23, 1991, when it was 4.70%.

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