Tax-exempt prices rose in sympathy with a government rally yesterday, but lost the gains, although the market retained a firm tone.

Treasury prices rallied when the stock market plunged, erasing some losses at the long end caused earlier by a weaker dollar.

Municipals significantly lagged the Treasury jump, rising only 1/4 point.

But governments came off their highs as stocks stabilized at lower levels and municipal prices eased in tandem.

The market remained quiet for the remainder of the session as players watched for an ease in monetary policy by the Federal Reserve Board.

The markets are expecting the Fed to ease on the heels of Friday's employment report, but a move may not be seen until tomorrow's Federal Open Market Committee meeting.

Traders said the Fed may also wait to ease until Wednesday's seven-year auctions are out of the way.

Negotiated Offerings

New deals continued to hit the market yesterday as issuers race to grab still low interest rates.

Leading the way, Tucker Anthony Inc. priced and repriced $426 million general obligation refunding bonds for the Commonwealth of Massachusetts.

At the repricing, yields were lowered by five to 10 basis points from 1995 to 2000.

A representative of Tucker Anthony's underwriting department said the sale was "oversubscribed, top-to-bottom."

"The deal was really structured to succeed," the representative said. "I think the state was interested in having their return to the market fly out the door."

Representatives of the Massachusetts Treasurer's office were unavailable for comment yesterday.

In a statement, State Treasurer Joseph Malone said that the bonds "were floated to exceptional market reaction. They will yield a present value savings of $18 million for the Commonwealth."

The final offering, including noncallable serial bonds, was priced to yield from 2.90% in 1993 to 5.35% in 2000.

The issue is rated A by Moody's Investors Service, Standard & Poor's Corp., and Fitch Investors Service.

Dean Witter Reynolds Inc. priced and repriced $200 million Alaska Housing Finance Corp. general housing purpose bonds.

At the repricing, yields of the maximum term bonds in 2023 were lowered by about two basis points.

The final reoffering scale included serial bonds priced at par, to yield from 3. 10% in 1993 to 6.25% in 2008. A 2012 term was priced as 6 3/8s, to yield 6.50%; and a 2023 term, containing $102 million of the loan, was priced as 6.60s, to yield 6.637%.

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

A group headed by Smith Barney, Harris Upham & Co. as senior manager priced and repriced $125 million New York City Water Finance Authority water and sewer system fixed-rate revenue bonds.

The final reoffering included a 2022 bullet maturity priced with a coupon of 6.50% to yield 6.57%.

The issue is rated A by Moody's, A-minus by Standard & Poor's, and A by Fitch.

The authority plans to sell $100 million of variable bonds sometime in the next two weeks, an underwriter at the firm noted. The sale would mark the authority's first variable-rate bond issue. Principal and interest would be insured by Financial Guaranty Insurance Co., which will also provide a liquidity facility in the form of a standby bond purchase agreement.

The water finance authority plans to issue its first variable-rate debt in two weeks when it plans to sell $100 million of adjustable-rate bonds.

Merrill Lynch & Co., as senior manager, priced and repriced $108 million master-lease purchase agreement certificates of participation for Colorado.

At the repricing, yields were lowered by 10 to 15 basis points from 1993 through 1996, while yields were raised five to 10 basis points from 2000 to 2005.

The final reoffering included serial maturities priced to yield from 2.90% in 1993 to 6.10% in 2005.

The issue is insured by the AMBAC Indemnity Corp. and is triple-A rated by Moody's and Standard & Poor's.

Bottom for Rates?

Citing a story in yesterday's Wall Street Journal, some market players argued that, even though the Fed will likely ease rates one more time, yields on long bonds have gone about as low as they can go.

"It feels like we're running out of gas," one trader said. "Concerns about the elections, the currency situation in Europe, and the fact that rates have moved lower for a long time make for good arguments that rates will move higher."

However, other market players are quick to disagree, noting that the economy is growing at a snails pace.

"It's logical that this would be the place for rates to move back up," one market source acknowledged. "But the economy is still in bad shape and the jury is still out on whether rates will actually bounce anytime soon."

Some market observers say that rates are likely to remain unchanged and even move lower over the next year.

"Our interest rate outlook calls for the Treasury curve to flatten over the next 12 to 18 months," said Aaron S. Gurwitz, vice president of fixed-income research at Goldman, Sachs & Co. "Long-term municipals would underperform Treasuries a lot because lower rates would unleash a huge number of refundings."

Bob Giordano, chief economist at Goldman, blamed the market concerns about rates on uncertainty about the outcome of the presidential election and said that most signs point to lower rates over the long-run.

"The steepness of the yield curve, restructuring of household portfolios to include market instruments instead of bank instruments, inflation rate, credit demands all suggest that bond yields will go lower," he said.

"The real fear is that Clinton will win and there will be a massive fiscal stimulus that will enlarge the budget deficit and push the economic growth rate up significantly," he added. "Those fears will persist until the election is out of the way. No one really knows what will happen, but if a fiscal stimulus package is small, as we expect, fears will disappear and economic fundamentals will rule the day."

Secondary Markets

Traders reported modest secondary trading as the market failed to whipsaw to the extent of the government market.

For example, First Boston Corp. freed $638 million of Washington Public Power Supply System refunding revenue bonds from syndicate restrictions soon after the Treasury market rally.

Traders said that the bonds rose about 1/4 point but later faded back to unchanged on the day as Treasuries came off their highs.

In late secondary trading, the 6 1/2s of 2015 were quoted at 99 1/4-3/8 to yield 6.552%, compared with the original reoffering yield of 6.552%.

Meanwhile, in the debt futures trading, the December contract settled down 4/32, to 96.19. The December MOB spread widened to negative 293 from negative 292 Friday.

In secondary dollar bond trading, prices were unchanged to 1/4 point higher on average.

In late action, Puerto Rico Electric Power Agency 6 1/4s of 2017 were quoted at 97 5/8-98, to yield approximately 6.442% on the bid-side; Chicago GO AMBAC 5 7/8s of 2022 were quoted at 93-1/2, to yield 6.404%; and Puerto Rico GO 6s of 2014 were quoted at 95 3/4-96, to yield 6.36%.

New York City Water Authority 6s of 2017 were quoted at 93-1/2, to yield 6.576%; Denver Airport AMT 6 3/4s of 2022 were quoted at 95 7/8 96 1/8, to yield 7.083%; and Los Angeles Department of Water and Power 6s of 2032 were quoted at 95 3/4-96, to yield 6.292%. Florida Board of Education 6s of 2025 were quoted at 96-bid, to yield 6.289%.

In the short-term note sector, yields were unchanged to five to 10 basis points lower on the day as yields continued a downward trend.

In late trading, California Rans were quoted at 2.60% bid, 2.50% offered; Los Angeles Trans were also quoted 2.60% bid, 2.50% offered; and New Jersey Trans were quoted at 2.55% bid, 2.50% offered.

Pennsylvania notes were quoted at 2.58% bid, 2.55% offered; Texas Trans were quoted at 2.55% bid, 2.50% offered; and Wisconsin notes were quoted at 2.60% bid, 2.55% offered. Meanwhile, New York state Trans were quoted at 2.75% bid, 2.70% offered.

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