Municipals sigfinicanty outperformed the Treasuries in the cash markets yesterday after a poor 30-year auction, with tax-exempt prices off only 1/4 point compared with the 5/8 point drop in governments.

In the debt futures markets, the September municipal contract dropped 6/32, settling at 92.25. The government bond fell 17/32, and the MOB spread settled at negative 109.

Trading was extremely quiet in the tax-exempt secondary as dealers were waiting on the release of this morning's July producer price index data.

The July producer price index report will show no change in wholesale prices last month, according to 14 economists surveyed by The Bond Buyer. But the core rate of inflation, excluding food and energy costs, will be up 0.2%, according to the survey.

In June, the price index was down 0.3% and the core rate showed no change, following gains of 0.6% in the index and 0.4% in the core rate in May.

Secondary traders kept themselves busy yesterday with securities from several large deals freed from syndicate restrictions and many of the issues managed price gains.

Lehman Brothers, senior manager for $4.1 billion California revenue anticipation notes, freed up this issue. The series A March notes were quoted near the end of cash trading at 4.62% bid, 4.58% offered, up in price from the original 4.65% net offering. The series B June notes were quoted at 4.70% bid, 4.67% offered, up from their 4.75% net offering.

Traders said that secondary market demand for California paper was formidable as much of the issue went to permanent investors in the primary sector.

In other short-term trading. New Jersey notes were quoted at 4.65% bid, 4.62% offered. Traders said there was $80 million March New York State tax and revenue anticipation notes out for the bid and traded around 5.03%. New York City tax anticipation notes were quoted at 4.70% bid, 4.65% offered.

Merrill Lynch, senior manager for $319 million Connecticut general obligation bond anticipation notes, also freed these notes from syndicate restrictions. There were very few notes available from dealers, and the market was quoted late in the session at 4.65% bid, 4.60% offered.

In the long-term sector, Merrill Lynch & Co., senior manager for $750 million New York City general obligation bonds, released the issue from price restrictions. In early activity, the bonds were trading around the original levels, but yields sank about five basis points for some maturities later in the session.

In secondary dollar bond trading, Florida State Board of Education 7 1/4s of 2023 were unchanged at 103 1/8-1/2 to yield 6.83% to the 2004 par call. The more recent 6 3/4s of 2021 were down 1/8 point to 98 1/2-5/8 to yield 6.86% to maturity.

New Jersey Turnpike Authority 7.20s of 2018 were even on the day at 103-103 1/4 to yield 6.63% to the 1999 par call and 6.79% to the premium call in 1993.

Prerefunded bond yields were mostly unchanged. Issues to be called in 1995 were quoted near the end of trading at 5.58% bid, 5.55% offered, while bonds with a 1996 call were quoted at 5.64% bid, 5.60% offered.

Despite this week's record supply for 1991, which approached $4 billion, most bonds left the Street, starving the secondary market and stifling activity. And The Blue List of dealer inventory shrank to $979.7 million. The Blue List has not been below $1 billion since February of this year.

The 30-day visible is at $3.95 billion, up $106.8 million from yesterday, but down $1.43 billion from last Friday.

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