Tax exempts rose 5/8 to 3/4 points yesterday, helped by government market strength and scarce municipal supply.

"Supply is fairly thin," one municipal trader said. While dollar bond prices gained 5/8 to 3/4 points, yields on high-grade issues fell seven basis points overall. Activity was moderate, a municipal analyst said.

In debt futures, the September municipal contract closed up 1/2 point to 91 27/32s. The 30-year Treasury bond closed up more than 1/2 point to yield 7.338%.

"I think that the municipal market is poised to continue to outperform Treasuries because of the supply-demand situation," said Margaret D. Patel, a portfolio manager at the Advantage Municipal Bond Fund. Patel manages three municipal funds totaling $56 million.

"I think Puerto Rico is good value," she said. Patel added that because more Puerto Rico paper has come to market, the bonds are no longer as rich as they had been due to their scarcity.

Another trader said municipals continue to outperform Treasuries because of short supply, upcoming bond calls, and the realization by retail that municipals are a good buy relative to Treasuries.

"With bond calls coming up, I just can't believe that there's not going to be a food fight for bonds," the trader said.

The trader pointed to the big move in the June MOB spread. The MOB went from a negative 503 on April 4 to a negative 386 yesterday. Yesterday's September MOB spread was negative 381.

The trader said that the market yesterday was looking ahead to today's May employment report, which could trigger a rally if figures show weaker than expected growth.

"Our market's looking to rally," he said, "It hasn't had anything to rally on in a long time."

New Issues

In competitive action yesterday, a Dillon Read & Co. group won $100 million Port Authority of New York and New Jersey consolidated revenue bonds, bidding a true interest cost of 5.8743%.

Serial bonds were reoffered to investors at yields ranging from 5.25% in 2004 to 6.07% in 2017. A 2003 maturity as well as 2010 and 2011 maturities were not reoffered. Moody's Investors Service rates the issue Al, while Standard & Poor's Corp. rates it AA-minus.

Port Authority Treasurer John E. Haupert called the sale "excellent," and said five bids were received. Haupert said Chemical had the cover bid with a 5.889% TIC, followed by Prudential Securities with 5.902%, Lehman Brothers with 5.904%, and Donaldson Lufkin & Jenrette Securities with 5.906%.

Proceeds from yesterday's offering will be used to refund some of the authority's outstanding 58th Series consolidated bonds, Haupert said.

"It was a very popular deal," said Peter F. Schleipman, a senior vice president at Dillon Read. "There has not been a lot of New York and New Jersey high-grade paper in the marketplace."

Schleipman said yesterday that that the bonds were all sold, and he cited good retail demand through the 2008 maturity and strong institutional demand for the remainder of the deal.

Dillon Read is also expected to price a $100 million negotiated offering for the authority, Haupert said, adding that the time of sale hinges on interest rates.

"If interest rates are right, they are the firm that's going to run it for us," Haupert said.

Looking ahead to next week's new issue slate, Massachusetts will sell $300 million of special obligation revenue bonds through a group led by PaineWebber Inc.; Pennsylvania Convention Center plans to sell $279 million of refunding revenue bonds through lead underwriter Kidder, Peabody & Co.; and Iowa School Corp. plans to sell $225 million of warrant certificates through a syndicate led by Piper Jaffray Inc.

Also next week, Maryland Energy Finance Administration is expected to sell $150 million of limited obligation solid waste disposal facilities recycling revenue bonds through a syndicate led by Lehman Brothers.

Illinois Health Facilities Authority plans to offer $125 million of hospital facilities revenue and refunding revenue redevelopment project bonds through a syndicate led by CS First Boston.

Santa Clara County, Calif. will accept bids for a $130 million offering of tax and revenue anticipation notes.

In other news, the 30-day visible of municipal bonds for today totals $3.83 billion. That comprises $1.74 billion of competitive bonds and $2.09 billion of negotiated bonds.

Standard & Poor's The Blue List declined $18.7 million yesterday, to $1.7 billion.

Fitch Rates Milwaukee

Fitch Investors Service assigned an AA-plus rating to the City of Milwaukee's, $16.58 million general obligation corporate purpose bonds, Series A. The move marks the first time the agency has rated Milwaukee's debt, according to a Fitch release.

The bonds are selling competitively on June 7. Fitch also gave the city's $379 million outstanding general obligation bonds an AA-plus rating. The credit trend is stable.

"Milwaukee's extremely strong financial balances and management, stable revenues, and predictable budgets provide the basis for the AA-plus rating," Fitch's release says, "While manufacturing remains significant, the area economy is less vulnerable to economic fluctuations, and the city possesses a deep employment base."

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