Prices of tax-exempt bonds ended 1/8 to 1/4 Point lower Friday as players hauled out their crystal balls yet again to see whether tomorrow's Federal Open Market Committee meeting would produce another credit tightening.

"The market is quiet," one municipal trader said. "There were some bid lists out [Friday] morning, which put a little bit of pressure on the market."

The trader estimated there were 10 lists out Friday, the largest of which totaled $43 million. The second heaviest list totaled about $25 million, he said. A municipal analyst gauged dollar bonds down 1/8 point overall, while yields on high-grade issues rose three basis points. Activity was light, he said. The trader said that with no number to move the market and the Fed watch in high gear, Friday's session lost power by 11 a.m. and finished 1/8 point lower.

In the government market Friday, the 30-year bond fell nearly 1/8 point to yield 7.79%. In debt futures, the December municipal contract was down nearly 1/8 point at 87 17/32s. Friday's December MOB spread was negative 376, compared with negative 377 on Thursday.

Asked what he thought the Fed would do this week, the trader replied: "I don't really know. If I say one [way], then it will be the other."

A tightening this week would mark the sixth this year.

"lt's not as easy a call as a month ago, but I will put it at 60%," said James Kochan, head of fixed-income asset management at Robert W. Baird & Co. Kochan expects that a 50-basis-point increase in both the federal funds rate and

the discount rate could come tomorrow or Wednesday.

While overall sentiment is bearish, the lack of new supply in the municipal market has allowed underwriters to price new deals at fairly aggressive levels, he said.

"The municipal market shares the fundamental bearish tone of the bond market as a whole," Kochan said.

The Fed aside, the bond market needs to see evidence that the economy is slowing, and it is not getting it, he said. Recent economic indicators including industrial production and capacity utilization are cause for concern, Kochan said.

Brian Wesbury, chief economist at Griffin, Kubik, Stephens & Thompson Inc., sees an 80% chance that the Fed will act sometime between tomorrow's meeting and the period shortly after the September employment report arrives on Oct. 7. He expects a 50-basispoint increase in both the fed funds rate and the discount rate.

The latest reports on industrial production, capacity utilization, and retail sales, as well as a drop in weekly claims for state unemployment insurance, all point to a growing economy, Wesbury said. On the inflation front, the Commodities Research Bureau's index and the August producer price index report as well as the National Association of Purchasing Managers survey all show that prices are on the rise, he said.

Wesbury said those factors tell him that the Fed needs to tighten again to prevent inflation from gaining momentum.

"The Fed has taken its foot off the accelerator, but it has not applied the brakes, and we are on a downhill slope," Wesbury said.

As for municipals, Wesbury said that while 10-to- 15-year municipals continue to yield roughly 70% of Treasuries on a pre-tax basis, they still represent good value, particularly for investors in the over 30% tax brackets. In addition to the tax benefits, many localities are finding themselves in particularly good fiscal shape these days, which improves the credit outlook, reducing the default risk, he said.

In competitive action Friday, a Lehman Brothers group bested 10 other bidders to win $100 million Port Authority of New York and New Jersey consolidated bonds with a true interest cost of 6.54%, said authority treasurer John E. Haupert. Goldman, Sachs & Co. had the cover bid with a 6.55% TIC, he said. The offering featured a top yield of 6.65% in 2023

"We got 11 bidders, which is far more than we usually get on publicly offered sales," Haupert said, adding that he usually gets four or five on such publicly offered sales. The offering was done on a request-for-proposal basis, with letters sent to 15 firms on Sept. 15, Haupert said. Those 15 firms were major firms that are involved on forward transactions, he said.

Haupert said the issue will not close until January and will be used to refinance existing debt. The authority wanted to tap the market now, however, to lock in current rates. The RFP process facilitates the sale of bonds with a delayed closing date, he said. The traditional public offering process usually has a week to 10-day closing period, rather than the three-month period for this deal. Haupert declined to identify the debt being refinanced.

"It locks in a very nice savings," Haupert said, "We are looking at savings in the $15 million area."

Turning to this week's negotiated action, Harris County, Tex., is scheduled to sell $180 million of MBIA-insured revenue bonds through Lehman Brothers tomorrow. Tentatively scheduled for tomorrow is the New York State Medical Care Facilities Finance Agency's $173 million offering through Bear, Steams & Co.

On the competitive front, the New Jersey Housing and Mortgage Finance Agency is scheduled to sell $77 million of revenue bonds. The bonds, which are not subject to the alternative minimum tax, are scheduled for sale today. Tomorrow, Minnesota is scheduled to sell $120 million of bonds.

In other news Friday, the 30-clay visible supply of municipal bonds totaled $2.51 billion, down $401.9 million from Thursday. That comprised $1.246 billion of competitive bonds, down $375 million from Thursday, and $1.26 billion of negotiated bonds, down $26.6 million.

Standard & Poor's Blue List of municipal bonds was up $136.1 million Friday to $2 billion.

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