Although the impact of today's massive and much ballyhooed bond redemptions will not be immediately apparent, the trading maxim "buy the rumor, sell the fact" faces the beginning of a tough test.

Market players today will look out from giddy price heights for the first signs that will eventually determine if demand from July 1 bond calls meets expectations or proves an ugly disappointment.

Market observers and the financial press, armed with relatively vague data, have helped to whip up market expectation that investor demand will explode, or at least improve, as billions of high-coupon bonds priced in the early 1980s meet with a first call date today.

The anticipated demand from redemptions, which are estimated to total anywhere between $6 billion and 12 billion, has been a major factor in pushing tax-exempt prices higher recently.

Over the last month prices have risen until they reached levels not seen since January, when yields hit recent record lows.

Those buyers rushed to purchase new securities to replace the paper that will be redeemed today, and the market handily digested 945 deals, totaling $23 billion in June.

The increased demand prompted market tone to firm considerably and bulls began to multiply, bidding higher for bonds, emboldened by successful deals priced at aggressive levels - including a California note deal sold last week that fetched a 1.45% interest rate on 30-day paper.

Opinions Vary

Over the long term, conventional market wisdom predicts that investor appetite for bonds will continue to be strong because of the July 1 bond call, and subsequent call dates, for the near term and possibly longer.

"A lot of this money is already in the market," said David Johnson, a vice president and manager of tax-exempt mutual funds at Van Kampen Merritt. "But there are investors, particularly bond funds, that still have money to spend. Buying has been most significant over the last month, but the demand should help the market in future months and into next year."

But opinions vary as to the amount of bond call cash that will be reinvested in municipals. Rates are low, and investors may be reluctant to put cash from high-coupon paper to work at market highs, some traders say.

Even more skeptical market players argue that the market has seen the best of redemption-related demand, and that the bulls could be in for a disappointment akin to that in February when prices plummetted after expected turn-of-the-year demand failed to meet expectations.

Jobs Data Loom

At the same time, the market faces tomorrow's June employment data at a time when prices are at sticker-shock levels.

"It's a spy versus spy game against unemployment," one trader said yesterday. "If the economic data are good for bonds there's nothing keeping us down. But bidding bonds at these levels makes you nervous - you have to be worried at these levels."

Other traders argued that there is support for the market at lower prices because investors have begun to suffer sticker shock, and are looking for a move lower before buying the dip.

As a result of the bond calls, investors have groped for the highest yields to replace much of the high-coupon paper priced in the early 1980s. Quality spreads have narrowed considerably over the last month as a result.

"You go to do swaps in order to get quality at some of the tightest spreads in a while and people won't do it cause they need the yield," one trader acknowledged.

For example, by the close Monday, there was a 75 basis point spread between Aaa rated paper and Baa rated paper in five years, and a 70 basis point spread in 20 years, a 52-week low, according to figures compiled by Delphis Hanover Corp.

The spread in five years had been as high as 105 basis points and as low as 65 basis points, while the spread in 20 years had been as high as 95 basis points.

Over the last month, yields of Baa rated paper, due in 20 years, have declined by 25 basis points, while yields of Aaa-rated paper have declined by only 10 basis points.

Traders noted the trend could reverse itself if the market takes a sudden downturn or bond call related demand proves to be weaker than generally expected.

Yesterday's New Deals

In new-issue action in the negotiated sector, a syndicated led by Goldman, Sachs & Co. priced and repriced $360 million of Metropolitan Transportation Authority commuter facilities revenue bonds.

Serial bond yields were lowered by five basis points from 1993 to 1996, while the series B 2022 term bond yield was raised by five basis points.

The final reoffering included $156 million series A bonds priced to yield from 2.85% in 1993 to 6.20% in 2008. A 2012 term bond was priced as 6 1/8S to yield 6.30%, and a 2017 term, containing $49 million of the loan, was priced at an original issue discount as 5 1/2S to yield 6.30%.

The remaining $204 million of Series B bonds were also priced to yield from 2.85% in 1993 to 6.20% in 2008. A 2012 term was priced as 6 1/8S to yield6.30%, and a 2017 term, containing $57 million of the loan, was priced as 6 1/4S to yield 6.35%. A 2022 term was priced at as 6 1/4S to yield 6.35%.

Both the Series A and Series B 2007, 2008, and 2009 serial maturities are noncallable.

The issue is insured by the Municipal Bond Investors Assurance Corp. and is rated triple-A by both Moody's Investors Service and Standard & Poor's Corp.

In other action, Morgan Stanley & Co. priced, and then repriced and restructured, $243 million of East Bay Municipal Utility District water system subordinated revenue refunding bonds.

Term bond yields in 2012 and 2020 were raised by about one basis points, while a 2009 term bond, priced to yield 6.27%, replaced a 2008 serial maturity, which had been priced to yield 6.25%.

The final reoffering scale included serial bonds priced to yield from 5.20% in 1998 to 6.20% in 2007. A 2009 term was priced as 6s to yield 6.27%, a 2012 term, containing $91 million of the loan, was priced as 6s to yield 6.311% and a 2020 term was priced as 6s to yield 6.346%.

The bonds are rated Al by Moody's and AA-minus by Standard & Poor's.

In the competitive sector, a syndicate led by Lehman Brothers won $100 million of Ohio state full faith and credit highway obligation bonds with a net interest cost of 4.8267%.

The firm reported an unsold balance of $8.6 million late in the session.

The bonds, which are noncallable, were priced to yield from 3.80% in 1994 to 5.15% in 1999.

The issue is rated Aa by Moody's and the managers said the issue is rated AAA by Standard & Poor's.

Secondary Market

Secondary prices were mostly unchanged as the market absorbed a mixed bag of economic news.

May leading economic indicators were stronger than expected, rising 0.6%, while coincident indicators were unchanged. In addition, the Chicagoland business barometer increased to 55.7% in June on a seasonally adjusted basis from 54.7% in May, the Purchasing Management Association of Chicago reported.

On an unadjusted basis, the index decreased to 55.75% in June from 56.7% in May.

An index reading below 50% signals a slowing economy, while a level above 50% suggests expansion.

"The numbers didn't do much to take away the firm tone that the market has right now," said a trader. "It's very difficult to scare away all the money that's coming into the market by a slightly better leading economic indicators report."

The trader said that although he is starting to see some sticker shock from low yields, investors are still clamoring for bonds. He said that the current light forward supply has also given bonds a boost.

Visible supply, as measured by The Bond Buyer, stood at $3.31 billion. Standard & Poor's Corp.'s Blue List, an approximate measure of dealer holdings, was reported at $1.26 billion.

In secondary dollar bond trading, prices were unchanged to 1.8 point higher in spots.

In late action, Florida Turnpike Authority FGIC 6.30s of 2012 ere quoted at 99 1/4-3/8 to yield approximately 6.36% on the bid-side. New Jersey Highway Authority 6 1/4S of 2014 were quoted at 98 7/8-99 to yield 6.34%, and New York City Water Authority AMBAC 6.20s of 2021 were quoted at 98 1/4-1/2 to yield 6.33%. Triborough Bridge and Tunnel Authority AMBAC 6 1/4S of 2012 were quoted at 99 1/4-1/2 to yield 6.31% and South Carolina PSA 6 5/8S of 2031 were quoted at 100 3/8-6/8 to yield 6.57%.

Meanwhile, traders of short-term securities said that action was brisk yesterday morning, but "slowed to a crawl" as the afternoon session wore on.

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