The short-term sector was flooded with $1.4 billion Pennsylvania tax anticipation notes yesterday, while long-term bond prices gained 1/4 point on inflation data that improved hopes for an ease.

Pennsylvania awarded the notes, due June 30, 1992, to nine firms. Goldman, Sachs & Co. took down $389 million with a bid of 5.25% and reoffered the notes to investors at 4.75% net. BT Securities took $350 million with a bid of 5.25% and reoffered the notes at 4.75%. A Merrill Lynch group won $250 million with a 5.25% bid and priced the notes to yield 4.75%. While Lehman Brothers bought $200 million with a 5.25% bid and a reoffering of 4.75%.

Prudential Securities took $100 million with a bid of 5.25%, but did not reoffer the notes to investors; J.P. Morgan took $100 million with a 5.25% bid and did not reoffer the securities formally; Bear, Stearns & Co. won $25 million with a 5.25% bid and reoffered them at 4.75%; Citicorp Securities won $25 million with a bid of 5.25% and reoffered the notes at 4.80%; and Smith, Barney Harris Upham & Co. took $11.1 million with a bid of par as 4.80s but did not reoffer the notes.

The notes are rated MIG-1 by Moody's Investors Service and SP1-plus by Standard & Poor's Corp.

Market participants had speculated that the Pennsylvania notes would be reoffered between 4.85% and 4.95%.

Market sources said that there was $800 million to $900 million worth of securities left in dealer hands near the end of the trading session. Notes that were sold were done on a going away basis, the sources said. Notes were trading professionally at 4.77% bid, 4.76% offered late in the session.

Meanwhile, secondary prices gained 1/8 to 1/4 point after inflation data sent Treasury prices up with the long bond up 7/8 point to yield 7.93%.

The producer price index for finished goods moved up 0.2% in August, following declines in the previous six months.

Further fueling hopes for a Fed ease, M2 money supply plummeted $9.7 billion to $3.4 trillion, erasing last week's $6.9 billion increase.

In the debt futures market, the December municipal futures contract settled near the highs, closing up 12/32 to 93.21 with the December MOB spread calculated at negative 156.

The market will be watching today's retail sales and consumer price data for clues.

August CPI will show a 0.3% rise, according to economists surveyed by The Bond Buyer.

"After the PPI data, the Fed can take some comfort that producer prices are under control, but the key is retail sales," said James L. Kochan, head of fixed-income research at Robert W. Baird & Co. "Retail sales iskey, but if the Fed doesn't ease, the selloff will be moderate with the long bond reaching 8.10% because the feeling will be that it's only a matter of time until they have to ease."

Mr. Kochan said that several negative indicators could push yields back up. "If you see evidence that the economy is recovering steadily then prices would have to adjust to the 5 1/2% funds rate and you might get an 8.20% on the long bond," he said.

In secondary dollar bond trading, prices were quoted up 1/8 to 1/4 on the day.

New Jersey Turnpike Authority 6.90s of 2014 quoted at 99 5/8-3/4 to yield 6.91%. New York LGAC 7s of 2016 were quoted at 98 1/2-3/4 to yield 7.10%. Puerto Rico Electric Power Authority 7s of 2021 were quoted at 99 1/2-3/4 to yield 7.01%. And Colorado River Authority insured 6 5/8s of 2021 were quoted at 97 3/8-1/2 to yield 6.82%.

In secondary short-term note trading, yields sank again as much as five basis points on the day.

In late cash trading, Los Angeles Transportation Authority notes were quoted at 4.69% bid, 4.60% offered. New Jersey Trans were quoted at 4.70% bid, 4.60% offered, while March New York State Trans were quoted at 5.15% bid, 5.13% offered. March California notes were quoted at 4.60% bid, 4.58% offered, while June California notes were quoted at 4.62% bid, 4.60% offered.

In prerefunded bond trading, bonds callable in 1995, were quoted near the end of cash trading at 5.43% bid, 5.40% offered.

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