Prices fell yesterday amid increased selling. but action was light ahead of today's sale of $1.1 billion New York Power Authority bonds.

Last week's summer sluggishness persisted yesterday, leaving an indecisive market to wait for the results of new deals for a hint of near-term price movement.

But municipals headed about 1/8 point lower after bid-wanted lists totaling about $300 million were put up for sale, traders said.

The selling did not represent broad-based weakness, they noted, but took the previously firm bid for bonds right out of the marketplace.

By session's end, dollar bond prices were quoted unchanged to down 1/2 on average, and as much as 3/8 point lower on the day, making for a mixed outlook. High-grades were quoted unchanged on average.

Reflecting the weaker bid for secondary bonds, Morgan Stanley & Co. freed $492 million Michigan Building Authority revenue refunding bonds from syndicate restrictions and the bonds were bid lower.

In late action, the AMBAC 5.30s of 2016 were quoted at the original 5.45% net, less 3/8 point.

Debt futures prices suffered more than cash. The September municipal contract settled down 103.19. The MOB spread widened to negative 438 from negative 426 Friday.

Looking ahead, traders reported a heavier tone as the market braces for $5 billion of new deals expected to be priced this week. Looking further ahead to supply, The Bond Buyer's 30-day visible supply rose to $6.36 billion yesterday from $6.04 billion Friday.

New York Power Deal

Dominating the week's new issue slate is $1.1 billion New York Power Authority bonds, expected to be sold today by a syndicate led by PaineWebber Inc.

Market players said yesterday they expected the offering to be well received by investors, despite a rating downgrade of the authority's outstanding debt on Friday. Standard & Poor's Corp. downgraded the power authority's $2.2 billion of outstanding parity bonds to AA-minus from AA with a negative outlook.

Standard & Poor's said the move reflected the increased competitive pressure, particularly in the wholesale market, exacerbated by the power authority's trouble nuclear operations.

Meanwhile, Standard & Poor's assigned an AA-minus rating to today's offering.

Dealers said yesterday that buyers would not be thwarted by the ratings action because the power authority is of above-average quality for New York paper, which is also in short supply.

But, they added, the offering is a sizable one, and therefore subject to some uncertainty.

Market sources said yesterday serial bonds might range in yield from 3.50% in 1996 to 5.25% in 2010, while term bonds in 2013 could be priced with a coupon of 5% to yield 5.32% and bonds in 2018 could be priced as 5 1/4s to yield 5.40% or as 5s to yield 5.37%. depending upon market conditions.

In New York yesterday, in late trading in the secondary market, traders said that a block of Triborough Bridge and Tunnel Authority 5s of 2012, which are rated lower than power bonds, traded through a 5.34%. That level suggests consensus price levels are cheap to the secondary market, although market players noted that action has been thin in the New York market recently.

One portfolio manager said yesterday that he expected the New York power bonds to perform well and that the cheap consensus price talk would lure the widest variety of buyers to the table. He added that term bond yields would probably be lowered by at least five basis points at a repricing.

Trading was active for the players involved yesterday, as they bid on a myriad of bonds up for sale from the Street and customers.

Secondary supply was on the increase all last week, thanks to a lack of conviction in the marketplace, but declined somewhat from Friday. The Blue List of dealer inventory fell $56.6 million, to $1.62 billion yesterday.

In secondary dollar bond trading, prices were mixed on the day, traders said.

In late action, Cook County GO 5 3/8s of 2018 were quoted at 5.58% bid; Charlotte AMT AMBAC COP 51/4s of 2020 were quoted at 5.49% bid, 5.45% offered; and Philadelphia Water MBIA 5 1/4s of 2023 were quoted at 5.52% bid, 5.48% offered.

In short-term note trading, yields were unchanged to five basis points higher, traders said.

In late action, California Rans were quoted at 2.83% bid, 2.80% offered and New York State notes were quoted at 2.55% bid, 2.50% offered.

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