Prices grinded higher yesterday, pushing the market close to a new trading range and all signs pointing to even more gains.

The market surged higher in the morning in active trading, and then quieted down as the day progressed, traders said.

But the bid for bonds in the secondary continued to be firm as the market gears up for increased demand from funds rich with cash and diminished bond supply.

The cash and supply environment helped pushed the average yield to maturity of the 40 bonds used to calculate the daily Municipal Bond Index to an all-time low and yields on The Bond Buyer's weekly indexes to their lowest levels in three months.

Traders said buyers were selective and the gains were often slow-in-coming as investors resisted higher prices but they bought bonds in the end anyway.

"It's hard to argue that prices are going to go down anytime soon," said a Chicago-based trader. "We're trying to stay involved and waiting for this fund money to kick in."

By session's end, cash prices were quoted up 1/4 point on average.

In the debt futures market, traders said the September contract was in an "over-bought" position. It settled off its highs of the day, but up 4/32 to 101.25. The September MOB spread widened to negative 359 from negative 350 Wednesday, as governments outpaced tax-exempts.

Traders reported increased swaps in the Street as dealers juggled their inventory, looking for bonds such as specialty state names that buyers will be most eager to hold when billions of dollars worth of bonds are called July 1.

The Treasury market has also been supporting the municipal market and the 30-year U.S. Treasury bond flirted with resistance at 6.70% yesterday.

Tax-exempt traders said they hoped a move through 6.70% would establish a new range and they added if that happens, rates could trek toward 6.50%.

Treasuries rallied after the jobless claims report, but traders said bond prices were already poised to move higher.

Initial state unemployment insurance claims gained 8,000 to a seasonally adjusted 353,000 in the week ended June 19.

Looking to supply, underwriters continued to price many deals at aggressive levels with good results.

The number of new deals has continued to decrease, as the market expects.

The Bond Buyer calculated 30-day visible supply at $4.13 billion, down $984 million.

The 30-day visible supply was calculated at $4.13 billion and is at its lowest level since February 18, when it was $4.05 billion.

A sneak-peek at next week's new issue calendar reveals few sizable deals, thanks to the July 4th holiday weekend.

Now Deals

In competitive new issue action, J.P. Morgan Securities won $117 million New Jersey Highway Authority senior parkway non-callable revenue refunding bonds with a true interest cost of 4.8887%.

The deal is one of the first large New Jersey offerings to come to market since Gov. Jim Florio signed an executive order in May requiring all state level issuers to sell their debt by competitive bid rather than by negotiated sale.

The firm reported an unsold balance of about $34 million late in the session. Serial bonds were reoffered to investors at yields ranging from 2.20% in 1994 to 5.20% in 2009.

The issue is rated A1 by Moody's, and the managers said the bonds are rated AA-minus by Standard & Poor's.

Market players noted the New Jersey bonds were priced with yields five basis points lower than those of similarly rated Port Authority of New York and New Jersey deal priced Wednesday, which also was an aggressively priced deal.

In short-term note action, Goldman, Sachs & Co. priced and repriced $500 million non-callable tax and revenue anticipation notes for the Los Angeles Unified School District.

The reoffering yield was raised by five basis points at the repricing.

The notes were finally priced with a coupon of 3% to yield 2.75%, due July 15, 1994. The issue is rated MIG-1 by Moody's Investors Service and SP-1-plus by Standard & Poor's Corp.

In the long-term negotiated sector, First Boston Corp. priced and repriced $79 million Indiana Health Facility Financing Authority hospital revenue refunding bonds for the Columbus Regional Hospital.

At the repricing, serial bond yields were lowered by 10 basis points and term bond yields were lowered by five basis points.

The final offering included serial bonds priced to yield from 2.90% in 1994 to 5.70% in 2008. A 2015 term was priced as 7s to yield 5.80%, and a 2022 term was priced as 5 1/2s to yield 5.85%.

The bonds are insured by Capital Guaranty Insured and rated triple-A by both Moody's and Standard & Poor's.

In follow-through business, Lehman Brothers freed $453 million Seattle Municipal Light and Power revenue and refunding bonds from syndicate restrictions.

The 5 3/8s of 2018 were quoted late in the day at 95 3/4-96 to yield 5.69%, where they were originally priced to yield 5.70%.

Goldman Sachs freed $180 million Dallas general obligation bonds to trade. Traders said the bonds changed hands at the original price levels.

Goldman Sachs also freed $95 million Geater Orlando Aviation Authority airport facilities refunding revenue bonds from syndicate restrictions.

The AMT AMBAC 5 1/2s of 2018 were quoted at 97 1/8-1/4 to yield 5.71%. Underwriters originally priced the bonds to yield 5.772%.

Citing market conditions, Merrill Lynch & Co. said it will not price $115 million lease revenue refunding bonds for the Financing Corporation for the School Board of Sarasota County, Fla., this week.

Traders reported good business flow and the big retail houses were said to move sizable amounts of bonds.

Secondary Markets

Broker bid-wanteds dominated action yesterday as traders swapped inventory and some large blocks of bonds changed hands, they said. Among the largest blocks that traded, $8 million to $10 million insured New York UDC 5 3/8s of 2013 were said to trade right around 5.53% and $7 million Phoenix 5.10s of 2004 were said to traded around 5%.

The Blue List of dealer inventory rose $32.4 million, to $1.62 billion, but it has been generally on the decrease this week.

In secondary dollar bond trading, prices were quoted up 1/4 to 3/8 point on average, but bond gains ranged from 1/2 to as much 1/2 point, depending upon the name, traders said.

In late action, Orange and Orlando FGIC 5 1/2s of 2018 were quoted at 5.64% bid, 5.62% offered; Boston 5 3/4s of 2023 were quoted at 98 1/2-99 to yield 5.85%; and Washington Public Power Supply System MBIA 5.70s of 2017 were quoted at 98 1/2-3/4 to yield 5.81%.

In the short-term sector, yields were about 10 to 15 basis points higher on the day.

Traders said note yields are rising as buyers grow short of cash near the end of the month.

In late secondary note trading, New York State Trans were quoted at 2.20% bid, 2.15 offered; Texas Trans were quoted at 2.25% bid, 2.20% offered; and Wisconsin notes were quoted at 2.60% bid, 2.55% offered. Los Angeles Trans were quoted at 2.60% bid, 2.58% offered.

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