The tax-exempt market wallowed through an up-and-down day as yesterday morning's economic reports slowed the rampant profit taking that started at the end of last week.

The week began on a downward note as prices fell 1/8 to 1/4 point at the open. Following the release of sluggish economic news, both the Treasury and tax-exempt markets edged higher.

"Last Thursday and Friday's slump in prices was still affecting us yesterday morning," a trader said. "We spiked a bit on the economic news and then quieted ahead of the new deals later this week."

The bulk of yesterday's action came immediately following the morning release of the July report of the National Association of Purchasing Managers.

The report says that 54.2% of the managers thought the industrial sector of the company was improving. That compares with a 52.8% reading for June.

According to analysis, a reading over 50% suggests an industrial sector that is expanding, and although the figure suggests growth, it is still a slow improvement.

Also released yesterday morning was the June report of construction spending. The report shows a decline of 1.5% Economists polled by The Bond Buyer had predicted no change for the month.

Municipal investors mostly shrugged off the report as old news. Most market players are focused on Friday morning's release of the July employment picture.

The June report shows that non-farm payrolls fell 117,000 for the month with the unemployment rate rising to 7.8%. Those numbers drove the Federal Reserve to come out of its shell of inactivity and lower both the discount rate and the funds rate 50 basis points.

Although the market has lost ground in each of the last three session, market watchers say the demand for bonds has gone unharmed.

One trader said there was still "a voracious hunger" for bonds, due in part to the plethora of refundings since July 1.

Municipal supply, as measured by The Bond Buyer, for the next 30 days, rose yesterday to $5.13 billion. Standard & Poor's Corp.'s Blue List, which measures dealer holdings, stood at $1.04 billion.

Over $3.9 billion in new debt is expected to come to market this week. Included are issues of $1 billion of New York City Municipal Water Authority bonds by a group led by Smith Barney, Harris Upham & Co., set for today or tomorrow; $550 million of Southern California Metropolitan Water District water revenue bonds by a group led by Bear, Stearns & Co. scheduled to be priced today; and $300 million of Lower Colorado River Authority, Tex., refunding revenue bonds by a group led by Goldman, Sachs, scheduled for Thursday pricing.

In the competitive sector, this week's large issues include $310 million of Puerto Rico GOs for sale on Wednesday; $250 million of Florida State Board of Education bonds to be sold today; and $219 million of Port Authority of New York and New Jersey revenue bonds to be sold today.

Yesterday, Fitch Investors Service gave an AA-minus rating to the Port Authority offering. Fitch said the rating was a positive reflection on the authority's solid, unaudited financial results from the first six months of fiscal 1992.

Fitch also said the authority has managed to cut operating costs 1.3%, while gross operating revenues rose 5.3%.

New Issues

The primary market began the week quietly, and dealers braced themselves for today's kick-off of the pricing on almost $4 billion in new deals.

In light new issuance a group led by Meridian Capital Markets Inc. priced an offering of $66 million of Reading, Pa., GOs.

The offering, which is triple-A rated and AMBAC-insured, included serial bonds priced to yield from 2.75% in 1992 to 5.85% in 2008.

There are also two term bonds. The first term matures in 2012 and is priced as 5.80s to yield approximately 5.96%. The second term matures in 2022 and is priced as 5 7/8 to yield approximately 5.991%.

A group led by Merrill Lynch & Co. priced $52 million of Dallas-Fort Worth International Airport and Dallas-Fort Worth Regional Airport joint revenue bonds.

The bonds are subject to the alternate minimum tax and are MBIA-insured.

The loan contains serial bonds priced to yield from 4.40% in 1996 to 6% in 2007. Also included in the loan are two term bonds. The first matures in 2012 and is priced as 5 3/4 to yield 6.1%; the second term matures in 2024 and is priced as 5 3/4 to yield 6.22%.

Secondary Market

Traders reported a quiet day all around, with prices dipping between 1/8 and 1/4 on heavily traded names.

In secondary dollar bond trading, Berks County, Pa., 5 3/4s of 2012 were quoted at 97 1/4-3/4 to yield 5.98%; Jacksonville Electric Authority 5 1/2 of 2014 were quoted at 93 1/2-94 to yield 6.03%; Los Angeles Department of Water and Power revenue bond 6s of 2030 were quoted at 98-1/4 to yield 6.13%; Puerto Rico Electric Power Authority 6s of 2010 were quoted at 98 1/2-99 to yield 6.13%; and New Jersey Turnpike authority 6 1/2s of 2016 were quoted at 106-3/4 to yield 6.04%.

In the short-term market, traders reported an uneventful day with yields remaining in a tight range throughout the session.

In late trading, Iowa Trans 3 1/2s were quoted at 3.04% bid, 3% offered, Los Angeles Trans 3 3/4s were quoted at 2.84% bid, 2.80% offered, and New York City Tans 3 1/4s were quoted at 2.80% bid, 2.70% offered. Wisconsin 3 3/4s were quoted at 2.90% bid, 2.87% offered, while New York State Tans 3.65s were quoted at 2.87% bid, 2.85% offered.

In late action Monday, prerefunded bonds callable in 1995 were quoted at 4.00% bid, 3.90% offered. Bonds callable in 1996 were quoted at 4.25% bid, 4.20% offered.

The September municipal contract settled down 6/32, to 98.23. At one point in the day, the contract was down as much as 14/32.

Puerto Rico to Sell GOs

The commonwealth of Puerto Rico plans to sell $310 million of GO bonds tomorrow. It will be Puerto Rico's first competitive bond offering since it sold $75 million of GOs in 1974.

Jose M. Berrocal, president of the Government Development Bank of Puerto Rico, which handles the structuring of the commonwealth's debt, was enthusiastic about taking bids. "For the last few years, we have been intent on improving the bank's personnel so that we may properly structure a competitive sale," Mr. Berrocal said. "As the sole issuer representing all Puerto Rico agencies, we owe it to them to have the ability to offer debt any way they desire."

Mr. Berrocal admits, though, the primary reason for offering Puerto Rico debt through competitive sale is due to the conditions of the market.

"Even if the market stays where it is, we should still see a historic low for Puerto Rico GOs," Mr. Berrocal said. "Last month's sale of notes went so sell, we expect a similar return with this sale."

Puerto Rico is aided by its commonwealth status in that all revenues realized from investments in their debt is free of federal, state, and local taxes.

A market analyst said that with the commonwealth's triple tax-free status and investors' demand for bonds, the long-end of the deal may yield below 6%. "I don't think it's unreasonable to expect the bonds to yield between 5.94% and 5.98% out to 30 years," he said.

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