If the week were a golf course, municipal market participants would be leaving their drivers in the bag. In fact, some of them probably would still be in the clubhouse.

A variety of potential hazards including the continuing Treasury refunding auctions, tomorrow's July producer price index and Friday's July consumer price index all point toward a measured approach, and away from one big bet.

"Everybody's got everything hedged," one municipal trader said. "Every trading desk is a miniature arbitrage." With so much potential for volatility, "nobody wants the exposure," he said.

Over all, municipal cash bonds were down 3/8 to 1/2 points yesterday in light activity, a municipal analyst said. Dollar bonds were down 1/2 point. While yields on high-grade issues overall rose three to five basis points, yields on lesser quality high-grade issues rose five basis points from 15 years on out.

Despite the secondary market's problems, the new issues managed to come at decent levels, the analyst said.

"There's no rhyme or reason, the new issues all came in line," he said, adding that yesterday's $250 million Massachusetts general obligation offering was untouched by the secondary market's woes.

"Certainly, the Massachusetts [deal] came right in line," the analyst said. "No give in the Massachusetts [offering] at all."

In debt futures, the September municipal contract was down nearly 5/8s to settle at 90 18/32. Yesterday's September MOB spread was negative 394, compared to negative 388 on Monday.

"No one's going to do anything in the face of the [Treasury refunding] auctions," another trader said. In addition to PPI and CPI, the second trader said Thursday's retail sales figure is also a number to watch.

Looming large, of course, is the likelihood of another credit tightening by the Federal Reserve, which many participants see happening following the Federal Open Market Committee meeting on Tuesday.

"Everybody knows the Fed is going to tighten, it's just a question of when and how much," the first trader said.

Added the second trader: "All the numbers you're seeing this week are kind of the last numbers the Fed will act on."

While the second trader sees a "65% to 70%" chance the Fed will act next week, the question remains whether the Fed will raise the Fed funds rate by 25 basis points or by 50.

"I think 25 would not do the bond market any justice," the second trader said,"I'd be very surprised if the long bond wouldn't rally on a 50, and I can see a sell-off on 2," he said.

Charles Lieberman, managing director and director of financial markets research for Chemical Securities, thinks that e market gets the PPI and CPI figures he envisions, a tightening is "highly likely" to come out of next week's Federal Open Markets Committee meeting.

Lieberman predicts a 0.5% rise in PPI overall, attributable mainly to higher coffee and energy prices. He sees a 0.3% rise in the core rate, which excludes food and energy. As for Friday's CPI report, the economist sees a 0.4% rise in the overall index linked to higher coffee and energy prices, and 0.3% rise in the core.

Lieberman said that although crude oil prices have been increasing for some time, a longer than usual lag has kept prices for finished energy products such as home heating oil from reflecting the crude increase until now. The lag is puzzling given increased capacity utilization, he said. Competition from foreign producers may have helped to keep finished prices down until now, he said. Coffee prices increased after a frost in Brazil.

In competitive action yesterday, a Merrill Lynch & Co. group won $250 million Massachusetts full faith and credit general obligation bonds, bidding a true interest cost of 5.9636%. The offering contained serial bonds price to yield from 4.55% in 1997 to 6.15% in 2012. Bonds in 1995, 1996, 2013, and 2014 were not formally reoffered to investors.

Massachusetts Deputy Treasurer Ken Olshansky said he was pleased with the sale.

"We ended up getting six bids and they were reasonably tightly bunched,"Olshansky said, "There was only one bid that was sort of out on the perimeter a little bit."

Goldman, Sachs & Co. had the cover bid of 5.9775%, Olshansky said. Meanwhile, following discussions with New York City officials, Standard & Poor's Corp. yesterday assigned an SP-1-plus rating to $750 million of the city's tax anticipation notes, and an SP-1 to $1.45 billion of revenue anticipation notes. The city will issue the securities today.

Standard & Poor's said it rated these securities at the same levels last year. However, the rating comes amid growing concern over an increase in the city's short-term borrowing. Executives at Standard & Poor's yesterday discussed their concerns with city officials.

Standard & Poor's said the city's short-term borrowings have increased 57% since fiscal 1993, a reflection of a growing cash-flow needs, which it said are related to the use of one-shot revenue raisers to balance the city budget.

Fixed rate yields were expected at 3.25% to 3.50% 0n the February notes, which have the highest rating. 3.50% to 3.75% on the April notes, and 4% to 4.20% on the-July notes.

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