A Fed ease buoyed more than $1 billion in new issues yesterday, but the supply made secondary traders cautious and prices ended narrowly mixed in sluggish activity.

In another attempt to give the economy a boost, the Fed cut the discount rate to 4.5% from 5%, the lowest level in nearly 20 years, and lowered the funds rate to 4.75% from 5%. Treasury prices moved higher, despite another disappointing auction, but tax-exempts foundered in anticipation of hat traders say its likely to be a sea of bonds in the secondary.

Market participants said prices have held up well under the avalanche of supply. But the load has recently gotten heavy, forcing underwriters to minimize risk by pricing deals at cheaper levels, which has created a disparity between bond prices in the primary and secondary sectors.

"A couple of weeks ago deals were getting priced aggressively," said one underwriter. "All the action has been in the primary and now you have to watch it in the secondary because you can get blindsided by underwriters."

In competitive new issue activity yesterday, Lehman Brothers won $321 million Pennsylvania Commonwealth general obligation bonds with a true interest cost of 6.3136%.

First Boston had the cover bid with a TIC of 6.317%.

Lehman reported an unsold balance of $117 million near session's end.

A Lehman officer said the deal saw mostly institutional business, with some interest from property and casualty companies, and reported no bonds stocked.

The offering included serial bonds priced to yield from 5.25% in 1996 to 6.55% in 2011. Maturities from 1992-1995, 2003, and 2006-2009 were not formally reoffered to investors.

The 1994, 1995, 2003, 2007, 2008, and 2009 maturities are insured by AMBAC Indemnity Corp. and triple-A rated by both Moody's Investors Servcie and Standard & Poor's Corp. The remaining maturities are rated A1 by Moody's and AA-minus by Standard & Poor's.

Merrill Lynch & Co. as senior manager priced $255 million California Housing Finance Agency home mortgage revenue bonds.

The offering included $60 million series F bonds priced at par to yield from 5.30% in 1995 to 6.60% in 2005. A 2008 term is priced at par to yield 6.70%, a 2011 term is priced at par to yield 6.75%, and a 2017 term is priced at par to yield 6.85%. A 2013 tender option bond was not formally reoffered to investors.

There are $120 million series G bonds, subject to the federal alternative minimum tax, priced at par to yield from 5.50% in 1995 to 6.85% in 2006. A 2011 term is priced at par to yield 6.95% and a 2027 term is priced at par to yield 7.05%. A 2019 tender option bond was not reoffered.

The bonds are rated Aa by Moody's and A-plus by Standard & Poor's.

Also included in the offering is $25 million non-AMT series H convertible option bonds, and $50 million AMT series I Cobs, not formally reoffered to investors.

The Cobs are rated AA/VMIG-1 by Moody's and A-plus/A1-plus by Standard & Poor's.

Merrill Lynch also tentatively priced $192 million Hawaii GOs.

The offering included $100 million GO serials priced to yield from 4.90% in 1994 to 6.60% in 2011, and $92 million GO refunding bonds priced to yield from 4.70% in 1993 to 6.35% in 2005.

The issue is double-A by Moody's and Standard & Poor's.

Another group led by Merrill Lynch tentatively priced $100 million Regional Transportation Authority, Cook, Dupage, Kane, Lake, McHenry and Will countries, Ill., GOs.

The offering included serial tentatively priced to yield from 4.85% in 1993 to 6.55% in 2006. A 2011 term is tentatively priced to yield 6.70%, and a 2021 term is tentatively priced to yield 6.70%.

The bonds are FGIC-insured and triple-A rated by Moody's, Standard & Poor's, and Fitch.

Meanwhile, secondary traders reported a heavy tone as supply weighs on prices and trading grinds to a halt as dealers begin to unload bonds from recent new issues.

Standard & Poor's Blue List of dealer inventory was down slightly to $1.3 billion yesterday, but several market participants speculated that secondary supply will soon begin to increase.

"People are going to have to change the way they look at secondary levels," said one trader. "The new deals are going to break in the secondary and remain as cheap as they came."

In the debt futures market, the December municipal contract settled up 2/32 to 94.17 with the December MOB spread widening to negative 139.

Several traders reported frustration at the lack of activity in the market.

"There's nobody who is willing to step out," said a New York based trader. "The tone was firm after the Fed cut the discount rate, but there was absolutely no follow-through."

In secondary dollar bond trading, Denver Airport 7 3/4s due 2021 were quoted at 91 3/8-92 to yield approximately 8.49%. North Carolina Eastern 6 1/2s of 2017 were qouted at 96 1/8-1/2 to yield 6.78%. Washington Public Power Supply System 6 7/8s of 2017 were qouted at 99-1/4 to yield 6.95%, and Massachusetts Water Resources Authority 6 1/2s of 2019 were qouted at 94 1/2-3/4 to yield 6.92%.

In new issue activity in the note sector, Prudential Securities won $60 million Orange County, Fla., tax anticipation notes with a net interest cost of 4.21%. The notes were reoffered to investors at a 4.10% net.

The issue is rated MIG-1 by Moody's.

In late secondary trading, note yields were mostly unchanged.

Los Angeles Trans were quoted at 4.04% bid, 4.00% offered. Pennsylvania Tans were qouted at 4.16% bid, 4.14% offered, and March New York State Trans were qouted at 4.87% bid, 4.85% offered. New York City Rans were qouted at 4.85% bid, 4.80% offered.

Negotiated Pricings

Smith Barney, Harris Upham & Co. tentatively priced $53 million Scottsdale Unified School District No. 48 of Maricopa County, Ariz., refunding bonds.

The offering included serials tentatively priced to yield from 4.50% in 1992 to 6.35% in 2004. A 2005 term was not formally reoffered.

The issue is rated Aa by Moody's and AA-minus by Standard & Poor's.

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