Prices were firm yesterday, but the market was at a standstill, waiting for today's consumer inflation report.

Demand continued to outweigh supply, giving bonds luster. But the dearth of supply has put the lid on trading activity in recent days. With few blocks of bonds available, players have been forced to wait for a scant number of deals and economic indicators to move the market.

Inflation data currently holds the most sway over prices. Bonds rallied Friday, after the producer price report showed lower than expected inflation. Yesterday, traders quietly manned their posts, waiting for today's consumer price report, before making any moves.

Traders reported some swaps, as dealers try to take advantage of some price aberrations, but action was light over all, and prices were quoted unchanged to 1/8 point higher by session's end.

There were enough gains to push The Municipal Bond Index up 5/32 yesterday, to a record high of 105.24. That reduced the average yield to par call of the 40 bonds used in the index to a record low 5.42%.

But the futures market continued to lead cash. The December municipal contract settled Up 7/32 ato 105.15. Reflecting market inactivity, the MOB spread narrowed by 1/32 to negative 476 from negative 477.

In light new-issue action yesterday, Smith Barney Shearson tentatively priced $125 million Suffolk County, N.Y., waste facilities general obligation bonds.

The offering included $110 million current interest bonds priced to yield from 3.10% in 1995 to 5.10% in 2012. There were also $15 million zero coupon bonds, priced to yield from 4.70% in 2003 to 5.25% in 2010.

The bonds are insured by Financial Guaranty Insurance Co. and rated triple-A by Moody's, Standard & Poor's, and Fitch.

In follow-through business, First Boston Corp. freed $691 million Washington Public Power Supply System refunding revenue bonds from syndicate restrictions. In late secondary trading, the 5 3/8s of 2015 were quoted at 5.49% bid, 5.48% offered, where they were originally priced to yield 5.52%.

In other secondary dollar bond trading, prices were narrowly mixed on the day.

Near the end of the day, Florida MPA AMBAC 4 1/2s of 2027 were quoted at 89 1/8-1/4 to yield 5.18%; Jacksonville Electric 5 1/4s of 2021 were quoted at 5.31 % bid, 5.30% offered; and Florida State Board of Education 5 1/4s of 2023 were quoted at 99 1/8-1/4 to yield 5.30%.

In the short-term note sector, yields were mixed, traders said.

In late action, California Rans were quoted at 2.68% bid, 2.65% offered and New York State notes were quoted at 2.55% bid, 2.50% offered.

The calendar of new issues remains light. Merrill Lynch & Co. is expected to price $400 million Kentucky State Property and Buildings Commission revenue and revenue refunding bonds today.

Preliminary price talk yesterday put the maximum yield around 5.30% for bonds due in 2013, market sources said.

Looking ahead, traders said they expected signs of a sluggish economy and low inflation to continue to force yields lower. But the lack of new bonds in the system has left the players with very little to work with.

Few deals are on the immediate horizon. The Bond Buyer calculated 30-day visible supply at $4.86 billion. Secondary supply remained at low levels. although the Blue List of dealer inventory rose $11.3 million to $1.08 billion.

"This thing should continue to chug along, but we're not getting much satisfaction out of it," one trader said. "The market has done so well, we may have priced ourselves out of a job for awhile."

Supply has eased somewhat after hitting record levels as issuers scrambled to refund older, high yield debt. Long-term municipal bond volume as of Friday, Sept. 10, was just shy of $200 billion at $199.78 billion. Last year, long-term bond volume did not break the $200 billion mark until early December.

Market players have slowly dwindled with the fading supply, even though prices continue to make hefty jumps. Traders said yesterday that bond funds are reluctant to take profits because of painful capital gains taxes, but also because replacing bonds would be more costly at current prices. That has cut off the flow of customer lists to the Street, leaving dealers hard-pressed to make profits in the scattered trading available between themselves. Crossover buyers, meanwhile, are few after losing their bets that cheap municipals would catch up to government prices.

"Yields have gotten so low it's a bear to get anything done," a trader said yesterday. "People are going to have to get used to these levels, and then maybe we can get something done."

But other market players suggested a more dangerous near-term perspective.

Several cited a story in the most recent issue of Barron's that compared the current bond market scenario with that of the stock market prior to the crash in 1987.

"The bond market' gapped up without a real level of satisfaction," one trader said. "Everybody has been looking for a big stack market correction,. the guys in Barron's are saying maybe we should be looking for that in the bond markets."

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