Municipals partially emerged from a morning hole dug by unfriendly trade figures to end 1/4 point to 3/8 point lower yesterday.

Tax-exempts had been down as much as % to 1/2 points following the Treasury market's negative reaction to July trade figures. The Commerce Department yesterday reported that the U.S. international trade deficit in goods and services jumped 21.6% in July to $10.99 billion.

"I think municipals just moved in sympathy," a trader said, "I don't think that there was anything [else] compelling that dropped municipals ." Dollar bonds lost 1/4 point, while yields' on highgrade issues rose three basis points overall, and five basis points in the intermediate range, a municipal analyst said.

"I think that activity was light, but there were bid lists in size," he said. The analyst estimated that lists totaled roughly $300 million. A trader said, however, that while lists were out there, yesterday was no different from what the market has seen of late.

In debt futures, the December municipal contract closed down more than 1/2 point at 87 25/32S. Yesterday's December MOB spread was negative 372, compared with negative 364 on Monday.

The 30-year Treasury bond staged a better comeback than municipals, ending less than 1/4 lower on the day. The government's benchmark posted a 7.77% closing yield.

'"The unexpected widening of the trade deficit was disconcerting to the market, especially to the extent that it moved the U.S. dollar lower vis-a-vis the Japanese yen," said John Lonski, senior economist at Moody's Investors Service. in late New York trading the dollar was changing hands at 97.60 yen.

Lonski said the cheapening of the greenback versus the yen heightens the inflation risk because it will make imports more expensive here, and, as a result, U.S. manufacturers will be able to charge more for domestic goods.

Lonski also noted that total imports were up 10.8% for the seven months through July, suggesting a "brisker than realized rate of U.S. economic expansion." That rapid expansion pace will probably translate into several more rounds of Federal Reserve rate increases over the next four to six months, the economist said.

Amid yesterday's declines, Lonski identified a potential bright spot for municipals.

"At least the weakness of the dollar bodes well for the regions whose manufacturers contend with Japanese rivals," the economist said. The cheap dollar will probably prove a boon to states such as Michigan and Missouri, which depend heavily on auto manufacturing.

For those in Michigan, a less than 100 yen dollar is like a 70 degree day in January," Lonski said. . "It's serendipitous to say the least ... Michigan residents have been known to watch the dollar-yen exchange [ratio] more closely than the [University of Michigan] football scores on a Saturday afternoon."

Lonski said that as overseas manufacturers find it increasingly hard to contend with competitively priced motor vehicles made in the United States. Japanese companies will have a stronger incentive to increase their production facilities here.

In yesterday's negotiated action, a CS First Boston group priced and repriced $273.5 million Puerto Rico Municipal Finance Agency 1994 series A bonds. The offering consisted of serial bonds priced to yield from 4.60% in 1996 to 6.1{)% in 2009. A 1995 maturity was done as a sealed bid. A 2014 term. containing $38 million, was priced to yield 6.30%. A 2019 term, containing $21.9 million, was priced to return 6.50%.

Bonds from 1999 to 2014 were FSA-insured. At the repricing, the insurance was taken off the 2019 maturity. The preliminary pricing had called for a 6.35% yield.

A source familiar with the offering said the insurance was removed from the 2019 maturity after institutional investors expressed a preference for uninsured paper. Demand came primarily from triple-tax exempt buyers and from mutual funds, he said. While the deal may have been done at a price that some institutional investors judged as aggressive, the source said enough demand came from mutual funds and trust departments to ensure that just a few bonds, primarily in the early maturities, remained by late day.

In competitive action yesterday, a J.C. Bradford & Co. group won $150 million of Nashville and Davidson County, Metropolitan Government, Tenn., unlimited tax general obligation bonds, bidding a true interest cost of 6.2218%.

"I think we are very pleased with the bids we got," said Napoleon Nelson, a senior managing consultant at Public Financial Management Inc. in Philadelphia. Nelson said the bottom three bids came in very close, but that J.C. Bradford beat them by at about six basis points. J.P. Morgan Securities Corp. had the cover bid at 6.2842%, followed by Smith Barney Shearson with 6.2986%, and Bear, Stearns & Co. with 6.29908%.

Nelson said Nashville and Davidson had been watching the market for weeks, and was "a little concerned" about rising interest rates. But he said the issuer was convinced that it had a good-sized, good-quality issue. Partial proceeds from the offering will go toward schools and the construction of an entertainment arena in Nashville.

The offering featured a top yield of 6.15% in 2025. Moody's and Standard & Poor's Corp. rate the offering double-A.

Patricia M. Dolan, a managing director at Prudential Investment Advisors, said she passed on yesterday's offerings. Dolan said she's having a difficult time finding bonds to buy because the yields are too low to provide much return in this period of rising rates. In addition, the deals tend to be structured inappropriately with bonds priced too close to par. Such a structure provides little upside in an improving market, and significant downside in a declining one, she said.

As for today, Orange County, Calif., is scheduled to price two series of taxable pension obligation bonds totaling S320 million. A portion of the issue will use floating-rate instruments backed by the liquidity of the county's $7.5 billion investment pool.

This is believed to be the first pension obligation bond issue to use a variable-rate structure, a departure from the usual practice of issuing such bonds with fixed-rate structures, market participants said.

"This is the first variable-rate structure that I know of on a pension bond deal," Matt Raabe, Orange County assistant treasurer, said yesterday. "The majority of pension obligation bond deals are being done in California because we are more likely to try new ideas before the rest of the country."

With CS First Boston as the senior managing underwriter, Orange County will issue $210 million of Series 1994A, and $110 million of Series 1994B.

Series 1994A is rated AA-minus and Series 1994B is rated AA-minus/A1 plus by Standard & Poor's Corp. Series 1994A is rated A1 and Series 1994B is rated A1/VMIG1 by Moody's Investors Service.

"There is a bearish tone to the market," Raabe said. "Orange County is a good high-quality credit; people are waiting for this deal."

The purpose of the bond issue is to eliminate the county's unfunded pension liability to its retirement system, and replace it with county debt. Raabe said.

Series A is fixed-rate debt that will be swapped into a variable-rate instrument with a 10-year swap agreement with CS First Boston, Raabe said. "In Series A, the investor receives a fixedrate coupon, and the county is engaged in a swap with CS First Boston," he said.

Series B consists of floating-rate paper with a weekly put option. "Series B is a straight variable-rate instrument remarketed weekly. Series B will be seven-day floaters with the county providing the liquidity, through the investment pool," Raabe said.

"Any savings to the county will show up at the end of the deal ," Raabe said. "The county gets 100% of any excess interest earnings on the money over the 8% earnings assumption rate that the retirement system has. To the extent that the investment earns greater than 8%, the county would get 100% of that differential. But the first 8% goes into the retirement system."

The reason the county is issuing the bonds "is to extinguish the unfunded liability and give some comfort to its retirees," Raabe said. "At the same time, since the county does enjoy any excess interest earnings on the money, there could be an economic benefit to the county as well," he added.

In other news yesterday, the 30-day visible supply of municipal bonds totaled $3.16 billion, up $412.5 million from Monday. That comprises $1.70 billion of competitive bonds, up $166.8 million from Monday, and $1.46 billion of negotiated bonds, up $245.7 million.

Standard & Poor's Blue List of municipal bonds declined $116.5 million yesterday to $1.81 billion.

Brad Altman contributed to this column.

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