Treasuries' malaise left corporate bonds holding the bag Friday, as a modest backup in yields nipped trading and issuance.

Just $400 million of new paper found its way to market as seasoned issues gave back early 1/4-point gains to finish virtually flat.

Investment-grade corporates had risen with Treasuries off the block after the second-quarter gross national product report pointed to a lackluster recovery for the U.S. economy.

"If there's a so-so tone to the market, issuers won't pull the trigger," one New York underwriter said. "People are looking and biding their time."

Undaunted by a soft market, New England Telephone & Telegraph Co. offered $200 million of intermediate- and long-term notes in a two-part deal underwritten by Goldman, Sachs & Co.

The telephone utility, a unit of NYNEX Corp., offered $100 million of noncallable 10-year notes priced as 8.825s to yield 8.708%, 53 basis points more than the 10-year Treasury note.

New England Tel also went long with $100 million of notes due in 2031. Offering investors call protection for the entire 40-year term, the securities hit the market with a 9% coupon at a price to yield 9.246%, or 57.5 basis points more than the bellwether long bond.

Moody's Investors Service rates the issue Aa2; Standard & Poor's Corp. rates it AA-minus.

Though New England Tel is still a top-notch phone credit, Standard & Poor's cut the company's long-term ratings from AA on June 7.

The agency cited concerns that the company will be unable to shore up its financial strength for some time. Standard & Poor's now has a negative outlook for the company.

The NYNEX unit provides local exchange telephone service in Maine, New Hampshire, Vermont, Rhode Island, and Massachusetts -- states hard hit by the economic slump.

While financial measures of credit risk -- including its relatively weak interest coverage of 4.12-times in 1990 -- are expected to improve, the recession and high levels of spending required to improve the utility's cost structure are likely to limit near-term gains, according to Standard & Poor's.

Elsewhere in the primary market, Pepsico Inc. made its usual decision to hedge its bets on interest rates with short-term notes.

Working through Lehman Brothers Inc., the consumer food company offered $200 million of three-year notes off its medium-term note shelf.

The noncallable securities were priced as 7.625s to yield 51 basis points over the Treasury curve.

Moody's rates the issue A1; Standard & Poor's rates it A.

Pepsico has limited its credit market borrowing to the short end this year, including $200 million of three-year securities it offered in January at a risk premium of 64 basis points.

Pepsi has large overseas cash balances that are probably invested in short-term paper, and the company may be trying to match those maturities, analysts say.

Officials at pepsico did not return telephone calls Friday.

In the hopper for tomorrow, Chrysler Financial Corp. is expected to hit the market with $1 billion of fixed-rate asset-backed securities via Salomon Brothers Inc.

The two-part offering will be backed by loans from Chrysler's U.S. Auto Receivables Co. to U.S. dealers to finance car and light truck inventories.

The deal is expected to include $250 million of securities with a two-year soft bullet maturity priced 75 to 80 basis points over Treasuries.

The second piece is expected to include $750 million five-year securities priced at a spread of 85 basis points.

The securities are expected to carry tripe-A ratings from the major agencies.

Nomura's Corporate Head

Robert Mankin, who heads the mortgage-backed securities division at Nomura Securities International Inc., will now run the firm's corporate bond business as well, Nomura announced Friday.

In this new post, Mr. Mankin, a four-year veteran of Nomura, will head the firm's corporate trading, sales, and research effort.

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