Sellers test Tuesday's jump on Wednesday and it gets 'F.'

Sellers tested the market's mettle yesterday after Tuesday's price jump and they found little resilience.

The price decline came right on the heels of an up-trade Tuesday that appeared as if it might lift the market back to recent highs. But tax-exempts got off to a poor start.

Traders reported steady bid-wanted flow during the morning session, and dollar bonds were quoted down 1/8 to 1/4 point.

Trading was sluggish and the focus was on new issue pricings up until mid-afternoon. Selling accelerated when Treasury bonds began to fall in earnest.

Traders cited a shopping list of worries for the down-trade, including expected strength in upcoming economic reports, higher oil prices, turmoil in Russia, and quarter-end selling pressure. A lack of retail interest, traders said, seemed to be the main culprit.

Whether the news was real or imagined, municipals were quoted down anywhere from 1/4 to 3/4 point, by session's end. High-grade bond yields were said to have risen about five basis points on average. In late secondary dollar bond trading, Florida State Board of Education 5 1/4s of 2023 were quoted down 3/4 point at 98 1/4-bid to yield 5.36%, South PUB 5 1/2s of 2032 were quoted one point lower at 5.49% bid, 5.47%.

In the debt futures market, the December municipal contract plummeted 25/32 to 104.07, after posting a high of 104.30. The MOB spread narrowed to negative 475, from negative 480 Tuesday.

The price drop also came one day after the market took on over $2 billion of supply, much of which was bid for or priced at high levels.

For example, in follow-through business, Merrill Lynch & Co. reported an unsold balance yesterday of $382 million from $800 million California general obligation bonds sold Tuesday. Late Tuesday, the firm had reported a balance of $396 million.

The supply overhang, traders said late yesterday, could dog the market as economic reports approach and buyers pull in their horns.

Secondary supply remained high yesterday, even though price gains earlier in the week stopped its 10-day advance.

The Blue List of dealer inventory fell $10.5 million yesterday, to $1.72 billion. The Bond Buyer calculated 30-day visible supply at $4.9 billion, up $44 million from Tuesday.

New Deals

Topping the negotiated slate, PaineWebber Inc. as senior manager tentatively priced $322 million water revenue refunding bonds for the Tarrant County, Tex., Water Control and Improvement Distict No. 1.

The offering was made up of serial bonds only, priced to yield from 2.65% in 1994 to 5.25% in 2013.

The issue is rated A1 by Moody's Investors Service and AA by Standard & Poor's Corp., except for bonds maturing from 2009 through 2013. They are insured by the AMBAC Indemnity Corp. and rated triple-A.

Morgan Stanley & Co. priced, repriced, and restructured $250 million sewer revenue bonds for the San Diego Public Facilities Financing Authority.

At the repricing, yields were lowered by two basis points from 2008 through 2010, and by five basis points from 2001 through 2003. A 2020 term replaced a 2018 term.

The final offering included serial bonds priced to yield from 2.80% in 1994 to 5.13% in 2010. A 2013 term was priced as 5s to yield 5.184%. The 2020 term, containing $80 million, was priced as 5 1/4s to yield 5.38%; and a 2023 term, containing $44 million, was priced as 5s to yield 5.35%.

The bonds are rated Al by Moody's and A-minus by Standard & Poor's, except for insured bonds. Maturities from 1997 through 2013 are Ambac-insured and rated triple-A by both Moody's and Standard & Poor's.

A syndicate led by Donaldson, Lufkin & Jenrette Securities Corp. tentatively priced $121 million revenue bonds for the Delaware River and Bay Authority.

Serial bonds were priced to yield from 2.75% in 1994 to 5.05% in 2010. A 2015 term was priced as 5s to yield 5.12% and a 2024 term was priced as 4 3/4s to yield 5.125%.

The bonds are rated A1 by Moody's and A by Standard & Poor's, except for the 2000 and 2001 maturities and bonds from 2008 through 2024. They are MBIA-insured and rated triple-A by Moody's and Standard & Poor's.

Bear, Stearns & Co. tentatively priced $97 million Orange County Health Facilities Authority hospital revenue bonds for the Orlando regional healthcare system.

Serial bonds were priced to yield from 2.75% in 1994 to 5.20% in 2010. A 2015 term was priced as 5s to yield 5.281%.

The Orange County issue is insured by MBIA and rated triple-A by Moody's and Standard & Poor's.

In light competitive action, $166.5 million Long Beach, Calif., harbor revenue bonds were won by CS First Boston, which bid a true interest cost of 5.1343%.

The firm reported an unsold balance of $55 million late in the day.

The offering, subject to the federal alternative minimum tax, included serial bonds reoffered at yields ranging from 3.50% in 1996 to 5.15% in 2010. Term bonds in 2013 were reoffered as 5 1/8s to yield 5.25% and term bonds in 2018 were reoffered as 5 1/8s to yield 5.30%.

The issue is rated Aa by Moody's and AA-minus by Standard & Poor's.

New York City Issue

New York City plans to sell $600 million of general obligation bonds on Tuesday, using Lehman Brothers as bookrunning senior manager, market sources said yesterday.

The deal is expected to include $25.3 million of daily-reset, variable rate debt, supported by a letter of credit from the Norinchukin Bank. The issue probably will not include the mini-bonds sold under the city's NYC Bonds program.

The city will also consider derivative products as part of the $600 million new money issue, but a market source said the deal may proceed without these products.

"This will probably be one of the more boring city deals," said a market source familiar with the issue. "There are no refunding bonds included, no NYC Bonds, and probably there will not be any derivatives."

New York City GOs are rated A-minus by Standard & Poor's , Baa1 by Moody's, and A-minus by Fitch Investors Service.

Michael W. Geffrard, director of the city's Office of Public Finance, said the city will decide on Monday if it will use any of the derivative suggestions dealers have provided.

Geffrard said that the transaction will be "one of the most uninteresting deals we have done in a while."

Market conditions have made the NYC mini-bonds unattractive, and the city has used most of its variable rate capacity, Geffrard said. Preliminary official statements will be mailed on Monday.

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