Friday's rally gave way to a quiet Monday as municipals ended unchanged to slightly higher.

"I would say we are unchanged with very little going on," a municipal trader said yesterday. He cited "a few customer lists" out for the bid.

The trader said that although the market traded up Friday, volume was thin with little going-away business. The offered side might have been up a point on Friday; the bid side was only up 1/2, he said. Yesterday, yields on high-grade issues finished unchanged, while dollar bond prices gained about 1/8 point overall, a municipal analyst said. Earlier in the day, some traders were calling the market unchanged to slightly lower.

"I just think the market kind of ran out of steam by late Friday," another trader said.

In debt futures, the September municipal contract settled down 6/32s to 91 31/32s. Yesterday's September MOB spread was negative 404, unchanged from Friday.

The 30-year Treasury bond closed unchanged yesterday to yield 7.38% The long bond held steady despite a strong reading delivered by yesterday's National Association of Purchasing Management's index. The index increased to 57.8 in July from 57.5 in June. A reading above 50 indicates general expansion in the manufacturing economy. A reading below 50 indicates a contraction.

"I think NAPM was a surprisingly strong report," said Brian S. Wesbury, chief economist at Griffin, Kubik, Stephens & Thompson, Inc. "I don't think that there's anyway you can discount what that number said.

Wesbury said the latest NAPM index points toward continued strong economic growth and rising inflation in the second half. The economist sees a 4% inflation rate and an 8% yield on the 30-year Treasury bond by year end. The reason government bonds didn't lose ground yesterday was that they are already trading in a range consistent with the present inflation outlook.

"Currently, the [long] bond's yield is not out of line," Wesbury said.

As for tax exempts, "I still think that municipals will continue to look good," he said. Interest rates aside, higher taxes and the continuing lack of new supply bode well for municipals, Wesbury said.

Turning to today's new issues, the competitive calendar features $300 million Illinois general obligation bonds.

"It's a state GO," said a municipal analyst. Aside from Georgia, "We haven't had one in a long time."

Today's negotiated slate features Harris County Health Facilities Development Corp., Texas, $470 million of variable rate hospital revenue bonds through J.P. Morgan Securities Inc. The bonds will be priced off the J.P. Morgan tax-exempt daily interest rate, a source familiar with the offering said.

The deal is being done in part to restructure three earlier floating rate deals issued through the City of Houston Health Facilities Development Corp. The three offerings, issued in 1984, 1985, and 1991, total $359.5 million, the source said. Proceeds from today's offering will also be used to pay off some other indebtedness incurred by the issuing hospital, Methodist Hospital. It also contains some new money.

Also today, the New York State Thruway Authority is expected to sell $375 million highway and bridge trust fund revenue bonds through Smith Barney Inc.

"It's a new credit," an investment banking source familiar with the offering said. He said that the offering was garnering "a lot of presale demand" from a mix of retail and institutional customers. One source familiar with the deal said it was expected to fetch a top yield of under 6.25% in 2014. Another said the top yield was likely to be 6.20%. The issue will feature a mix of insured and uninsured bonds.

The offering marks the first time New York State has issued a dedicated trust fund bond for transportation purposes, according to Steven J. Kantor, a principal at O'Brien Partners Inc., financial advisers to the thruway authority.

The trust fund was established by the state legislature last year, said Fred Clark, director of finance at the authority. Principal and interest on the bonds will be paid out of revenues from a a series of taxes on transportation activities, Kantor said. Proceeds will be used for various state transportation department highway and bridge projects, he said.

Clark said the new credit has received "considerable interest" from investors. Not a lot of New York State tax exempt revenue bonds are outstanding, he said. A marketing campaign for issue. which began two weeks ago, targeted several cities in New York and around the nation, Clark said.

Kantor said that the authority plans to issue $2.6 billion of the bonds over the next four years.

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