Profit-taking knocked the credit markets off record highs Friday, but a bullish tone prevailed.

Municipals posted 1/8 to 1/4 point losses after the Treasury market skidded nearly 1/2 point.

In the debt futures market, the September municipal contract settled down 9/32 at 104.09.

Traders attributed the losses to profit-taking after big price run-ups during the previous sessions.

Spurred by continued evidence of a weak economy, low inflation, and some technical factors, the 30-year bond reached an all-time low of 6.08% Thursday, and pulled back only slightly to 6.09% at the end of New York trading.

Despite Friday's losses, market players generally expected more price gains over the near-term.

The strong Treasury rally has raised hopes that the 30-year bond will drop through 6% sometime in the not too distant future.

The municipal market is likely to be quiet this week, thanks to the holiday and a light new issue calendar. But the economic calendar could pose some obstacles and the market could gap lower in thin trading on a number that is perceived to be bad news for bonds.

New home sales figures will be released today, followed by preliminary gross domestic product information tomorrow. The Purchasing Management Association in Chicago releases its August index tomorrow as does the Conference Board. Finally on Wednesday, the National Association of Purchasing Managers releases its August index.

Before Thursday's rally, the credit markets, especially the municipal market, resisted an impetus to take prices higher. Market players were skeptical of the record high prices and were wary of a sell-off. But those worries gave way when the bullish tone proved too strong. Players jumped on the bandwagon and prices rose in active trading.

Thursday's rally wiped out a big chunk of secondary supply that had reached a high point. By Friday, The Blue List of dealer inventory plummeted $229.7 million, to $1.5 billion. The list had been $1.795 billion, the highest level since Aug. 5, when it was $1.86 billion.

Looking ahead to supply, The Bond Buyer calculated 30-day visible supply at $3.11 billion, down $449 million from Thursday's $3.56 billion and the lowest since Dec. 28, 1992, when it totaled $2.81 billion.

Friday's 30-day supply level was down $2.94 billion from the previous Friday's $6.05 billion.

The number of deals expected to be priced this week totals a mere $2.5 billion.

Total expected sales this week are the lowest since the week ended April 9 when only $2.66 billion came to market.

The competitive calendar features the biggest deals of the week. Topping the slate is $466 million University of California Regents refunding revenue bonds, followed by $225 million Florida State Board of Education capital outlay bonds, both to be sold tomorrow.

The negotiated slate contains only three sizable offerings, all under $200 million.

Bear, Stearns & Co. will price $181 million Jacksonville, Fla., electric system revenue refunding bonds; Smith Barney Shearton will price $176 million orange County, Fla., sales tax refunding revenue bonds and $100 million Michigan State Hospital Finance Authority revenue refunding bonds.

Friday's Market

Activity was extremely lackluster, traders said. Most market players were content to mark their bonds down 1/8 to 1/4 point and wait for this week's economic indicators before making further plays.

In secondary dollar bond trading, prices were mixed.

In late action, New York State Power Authority 5 1/4s of 2018 were quoted at 98 1/2-3/4 to yield 5.35%; Los Angeles Convention Center MBIA 5 1/8s of 2021 were quoted at 5.45% bid, 5.42% offered; and Philadelphia Water Cap. Guaranty 5 1/2s of 2014 were quoted at 98 3/4-99 1/8 to yield 5.60%.

Rhode island Convention Center MBIA 5s of 2020 were quoted at 5.54% bid, 5.52% offered; Michigan Building Authority AMBAC 5.30s of 2016 were quoted at 5.43% bid, 5.40% offered; and Charlotte COP AMT AMBAC 5 1/4s of 2020 were quoted at 5.45% bid, 5.42%s offered.

In the short-term note market, yields were unchanged on the day.

In late action, California Rans were quoted at 2.83% bid, 2.75% offered, while New York State notes were quoted at 2.52% bid, 2.43% offered.

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