Prices were unchanged, but the tone was firm yesterday, thanks to marginal improvements in the government market.

Municipal traders reported better business flow in the secondary market as firmer Treasury prices lent some confidence to the Street after numerous volatile sessions.

Meanwhile, the New York City Health and Hospitals Corp. entered the municipal market with a $550 million revenue bond offering. The issue, the first under a new financing program for the public corporation was priced attractively and found numerous buyers.

Yields have recently been on the rise because the credit markets have been bothered by inflation-related worries and Washington's inability to pass an acceptable budget.

But tax-exempts opened 1/8 point higher yesterday after government traders made gains, even though many market players remained cautious.

The Treasury market gave back those gains by the end of trading, but municipals retained a firm tone.

By session's end, dollar bonds were quoted unchanged to up 1/8 to 1/4 point in light trading.

In the debt futures market, the June municipal contract settled up 6/32 to 100.04. The June MOB spread narrowed to negative 321 from negative 331 Monday.

But the market continued to struggle against the backdrop of big supply. Despite more active trading, secondary supply continued its climb higher, reflected by The Blue List, which rose $17.8 million, to $1.72 billion, above the month's average of about $1.4 billion.

Recent volatility has created enough uncertainty for many investors to exercise caution, slowing the flow of business to permanent investors.

Traders also said that because of the recent volatility big disparities have come to pass in the relative value between bonds, creating unique opportunities.

Treasuries have been bouncing off their lows, while municipals have been slow to respond and tax-exempt bonds have become increasingly cheap as a result.

Highlighting the trend, Kemper Securities Inc. is urging its investors to take advantage of price disparity as a way to make money in the riskier market environment.

Kemper notes in a recent newsletter that, coupled with heavy forward supply, volatility will likely cause more market imperfections.

The firm concludes that "at those points when Treasuries are bouncing off the low end of the trading range [plus/minus 7.00 basis] and municipals are slow to respond to the improvement in the government market, the investor can make purchases at very favorable percentage of Treasuries."

For example a $200 million bid-wanted list made up of pre-refunded bonds attracted much attention yesterday. Traders said they took bonds off the list at 88% or 89% of Treasuries.

New Deals

New issuance was relatively light yesterday.

In the negotiated sector, a 13-member syndicate led by Dillon, Read & Co. Priced, repriced, and restructured $550 million health system revenue bonds for the New York City Health and Hospitals Corp., the issuer's first ever offering under a new borrowing authorization.

At the repricing, serial yields were lowered by five basis points in 2003, 2004 and 2006 and 2007. Term bond yields were lowered by three basis points in 2013 and by seven basis points in 2020. A 2011 term was added at the repricing, while insurance was removed from the 2005 maturity and added to bonds maturing in 2008.

A Dillon Read officer said the deal saw "substantial priority business" and touted pre-sale efforts by the issuer and bankers.

The final reoffering included serial bonds priced to yield from 3.40% in 1994 to 5.70% in 2008. Term bonds in 2011, which contained $52 million, were not formally reoffered to investors; a 2013 term, which contained $42 million, was priced as 5 5/8s to yield 5.68%; term bonds in 2020, which contained $188 million of the loan, were priced as 6.30s to yield 6.358%; term bonds in 2022, which contained $70 million, were priced as 5 3/4s to yield 5.80%; and term bonds in 2023, totaling $38 million, were not formally reoffered to investors.

Bonds in 2011 and 2023 contained derivative products and were priced by PaineWebber Inc. PaineWebber could not be reached for comment.

Serial bonds from 1995 through 2004 were Connie Lee insured and rated triple-A by Standard & Poor's Corp.

Term bonds in 2011, 2013, 2022, and 2023 are insured by the AMBAC Indemnity Corp. and rated triple-A by Moody's Investors Service and Standard & Poor's. The remaining bonds are rated Baa by Moody's and triple-B by Standard & Poor's and Fitch Investors Service.

Traders noted the uninsured maximum term bonds of 2020, which were priced to yield 6.423% were attractive, when compared with comparable New York City bonds. City 6s of 2021 were quoted at 6.25% in late secondary trading yesterday.

In the competitive sector, $250 million non-callable Illinois general obligation refunding bonds were won by a First Boston Corp. with a true interest cost of 4.895%. The firm reported an unsold balance of $76 million. Serial bonds were reoffered to investors at yields ranging from 3.50% in 1995 to 5.35% in 2005. The issue is rated double-A-minus by Moody's and Standard & Poor's.

Secondary Markets

Traders reported two sizable lists of pre-refunded bonds out for the bid, many of which changed hands.

Traders also reported the typical smattering of $3 million to $5 million blocks of bonds out for the bid and one sizable block in the $15 million range of New Jersey Transit Trust bonds. But traders said the block did not change hands.

In secondary dollar bond trading, prices were quoted unchanged to 1/8 to 1/4 point higher.

In late action, California Water 5 1/2s of 2023 were quoted 1/4 point higher on the day on the bid-side at. 5.87% bid, 5.85% offered; Texas Municipal Power MBIA 5 1/4s of 2012 were quoted up 1/8 at 5.84% bid, 5.82% offered; and New York City 6s of 2021 were quoted up 1/2 at 6.25% bid, 6.24% offered.

Washington Public Power Supply System MBIA 5.70s of 2017 were quoted up 1/8 at 96 1/2-5/8 to yield 5.97%; Los Angeles DEWAP 5 7/8s of 2030 were unchanged at 99 3/8-5/8 to yield 5.91 %; and Chicago GO FGIC 5 5/8 of 2023 were quoted up 1/8 point at 94 7/8-95 1/4 to yield 5.99%.

In the short-term sector, yields were mixed on the day.

In late action, California notes were quoted at 2.95% bid, 2.90% offered; New York State notes were quoted at 2.35% bid, 2.30% offered; and Texas notes were quoted at 2.40% bid, 2.35% offered.

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