The market awaits inflation figures, not with fear but with respect.

Municipals ended unchanged to slightly lower yesterday as the market readied for fresh inflation news.

"I think people realize that we've got to get through the [inflation] numbers here this week," one trader said.

The market started the week on a firm tone, reflecting a view that it had begun to turn the corner and was about to do better. "I think these numbers will determine whether we do that," the trader said, adding, "I think caution is probably the operative word here." Another municipal trader said players appeared to be approaching today's release of the September producer price index and tomorrow's consumer price report with a little less trepidation than has been the case with some other numbers in the recent past.

"I think [market participants] are probably a little less nervous than they have been about prior numbers," the trader said, adding that hope exists that the September employment data released last Friday could mark the start of a trend.

"The last number we had on Friday we are hoping is the first of a round of we are hoping is the first of a round of numbers that will put less pressure on the Fed to react," he said.

Others agreed that participants didn't appear to be overly fearful of the inflation news.

In light secondary activity yesterday, yields on high-grade issues ended unchanged, while dollar bond prices ended unchanged to 1/8 point lower.

In debt futures, the December municipal contract ended down 10/32 to 86 10/32. Yesterday's December MOB spread was negative 382, compared with negative 379 on Tuesday.

As for selling, "bid lists keep coming," one trader said. One institutional customer is expected to put three blocks of bonds averaging about $23 million each out for the bid this morning.

In the Treasury market, the 30-year bond closed down 10/32s to yield 7.89%.

"There was really some limited up-side potential," said Kevin Flanagan, a vice president and financial economist at Dean Witter Reynolds Inc.

"On Friday, the market's worst fears proved to be unfounded with respect to the employment report." he said. Following the runup the market saw on Friday and on Tuesday morning, it started to trade off a bit Tuesday afternoon, Flanagan noted. He added that most of those earlier gains stemmed from short covering.

The economist also believes that the market is looking ahead to the latest inflation reports with somewhat less fear than in the past. In addition, the market overall seems to be increasingly embracing the idea that the Federal Reserve will refrain from tightening monetary policy before the next meeting of the Federal Open Market Committee in mid-November.

Turning to the buy side, Patricia M. Dolan, a managing director at Prudential Investment Advisors, said she passed on yesterday's offerings.

Dolan said she is preparing for illiquidity in the fourth quarter.

"I think that there will be accelerated cash withdrawals from some funds as individuals book tax losses," she said. "This is the first time in four or five years that there are significant tax losses."

That illiquidity would come at a time historically marked by heavier new issuance, Dolan said. While it may not occur this year because new issue patterns are a bit out of synch, issuance usually picks up in December because some issuers are under caps, and if they don't issue in December, they lose the ability to issue bonds.

"So I think it's possible that issuance increases slightly at a time when many individuals may be booking losses in their mutual funds," she said.

In new-issue action, a Smith Barney group tentatively priced $261 million of Texas Veterans Housing Assistance Program general obligation bonds with a top yield of 6.95% in 2025, subject to the alternative minimum tax. Non-AMT refunding bonds carried a top yield of 6.125% for the super sinkers due 2015.

In competitive action, a Merrill Lynch & Co. group won $100 million Montgomery County, Md., unlimited tax general obligation consolidated public improvement bonds with a true interest cost of 5,795%.

The offering consisted of serial bonds priced to yield from 4.35% in 1996 to 6.20% in 2014. A 1995 maturity was done as a sealed bid. Moody's Investors Service, Standard & Poor's Corp. and Fitch Investors Service rate the offering triple-A.

Alan M. Socolik, assistant money and investment manager for the county. said a total of five groups bid on the offering. Goldman, Sachs & Co. had the cover bid with a true interest cost of 5.799678%; followed by Donaldson, Lufkin & Jenrette with a 5.818898% TIC; Bear, Stearns & Co. with a 5.831429% TIC, and Smith Barney Inc. with a 5.836339% TIC.

Elsewhere in competitives yesterday, a BA Securities Group won $90 million Sacramento, Calif., public facilities project certificates of participation with a 6,394% TIC.

The Ambac-insured offering consisted of serial bonds priced to yield from 4.80% in 1998 to 6.35% in 2012. A 2014 term was priced to yield 6.375%, while a 2019 term was priced to yield 6.40%. A 2024 term was not reoffered.

In other news, the 30-day visible supply of municipal bonds yesterday totaled $4.98 billion, up $229.8 million from Tuesday, That comprises $1.788 billion of competitive bonds, up $56.8 million from Tuesday, and $3.193 billion of negotiated bonds, up $173.1 million.

Standard & Poor's Blue List of municipal bonds was down $163.2 million yesterday to $1.95 billion.

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