Tax-exempt prices are nearing heights not seen since January; when yields fell to recent record lows, and market players yesterday reported a continued firm tone.

Heady municipal prices in January gave way to a precipitous fall in February. But since then much of the damage has been undone. Economic news has proved friendly to bond prices, and aggressively priced deals have been met with increased investor demand, boosted by hopes for an influx of cash from massive July 1 bond calls.

Friday, The Bond Buyer calculated the 20-bond index at 6.42%. the 11-bond index at 6.31%, and the revenue bond index at 6.55%.

On Jan. 9, the 20-bond index reached a 12-year low when it fell to 6.40%. That was the lowest since Aug. 30, 1979, when it reached 6.30%. The 11-bond index hit 6.28%, which was the lowest it has been since Sept. 27, 1979, when it was 6.23%, while the revenue bond index set a record low of 6.53% on Jan. 9. The index began in September 1979.

But several market players said yesterday that the high prices have them nervous. In late January the market was sky-high in anticipation of increased investor demand from the so-called January effect. The effect turned out to be less than the market anticipated, which sparked a painful move lower. The January scenario resembles the current market, worried traders said, adding that the market could go either way in reaction to Thursday's June employment data.

"We're little leery right here," acknowledged the head of one Wall Street trading desk. "We're technically overbought and I'm reminded of the 1987 scenario. The July 1 bond call money is already in the market, and we're overextended."

In addition, market bears point out that the summer is historically a time when investors take a break from the market, and that could fuel disappointment.

Although the market's next turn appears to hinge on the release of jobs data Thursday, economic news continued to offer pleasant surprises for bond prices yesterday.

Sales of new single-family homes in May fell 5.6% to a seasonally adjusted annual rate of 501,000, the lowest level in eight months, according to the Commerce Department. The market was happily surprised and the tone firmed and some prices rose 1/8 in light trading.

In the debt futures market, the September municipal contract settled up 8/32 to 96.07.

Today, the release of the Chicago purchasing managers' report could give a glimpse of what Thursday's closely watched report by the National Association of Purchasing Management will reveal about business strength.

Looking to supply, market players note that the Street owns more bonds than many are willing to admit, but new issues appear to be well received in general.

Secondary traders decry the lack of tradable blocks of bonds, adding that demand still seems to outstrip supply, despite some sticker shock felt by investors.

The Blue List, an approximate indicator of dealer inventory, totaled $1.27 billion yesterday, a manageable level, traders said, considering the $7.2 billion of new deals priced last week.

Both secondary and primary activity was light yesterday, but a syndicate led by Merrill Lynch & Co. as senior manager priced and repriced $225 million of Rhode Island and Providence Plantations GO tax anticipation notes in the short-term primary sector.

At the repricing, reoffering yields were raised by five basis points.

The final scale included $175 million Series 1 notes priced as 3 3/4s to yield 3.35%, due June 30, 1993. The remaining $50 million series 2 notes were priced as 3 1/2s to yield 3%, due June 30, 1993.

The Series 1 securities are rated MIG-2 by Moody's Investors Service, SP1-plus by Standard & Poor's Corp., and F1-plus by Fitch Investors Service. The Series 2 securities are backed by a letter of credit from Union Bank of Switzerland. The Series 2 notes are rated MIG-1 by Moody's, SPI-plus by Standard & Poor's, and F1-plus by Fitch.

In follow-through business, Lehman Brothers, senior manager for $405 million of Pennsylvania GOs, reported an unsold balance of $93 million.

Meanwhile, in secondary dollar bond trading, Florida Turnpike Authority FGIC-insured 6.70s of 2012 were quoted at 99 1/4-3/8 to yield approximately 6.36% on the bid side, New Jersey Highway Authority 6 1/4 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 3/8-1/2 to yield 6.30% and South Carolina PSA 6 5/8s of 2031 were quoted at 100 3/4-7/8 to yield 6.57%.

Negotiated Pricings

Merrill Lynch & Co. priced $60 million of Alachua County, Fla., School District GO bonds.

The offering included serial bonds priced to yield from 3.10% in 1993 to 6.15% in 2007. A 2012 term was priced as 6.30s to yield 6.35%.

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