The tone in the tax-exempt market remained firm yesterday, despite a slide in government prices, and investors continued buying new deals, allowing underwriters to lower yields.

Long Treasury prices fell as much as 1/2 point on late selling, but municipals barely budged as the market remained convinced the Fed will ease monetary policy soon.

"With the government fade, some guys were getting nervous," a New York trader said. "It's logical that we're due for a correction, but the bid is still firm, and there doesn't seem to be any doubt about an ease."

The strong tone was reflected in the debt futures market, which was buoyed by MOB spread buying. The December municipal futures contract settled up 2/32 to 95.07. The December MOB spread narrowed to negative 157.

Also reinforcing the trend for even lower interest rates, new issues fared well, with most underwriters lowering yields on deals.

Smith Barney, Harris Upham & Co. as senior manager tentatively priced and repriced $100 million Maine Educational Loan Marketing Corp. student loan revenue refunding bonds. Yields were lowered by five basis points on serials from 1996 to 1999, and three basis points on the 2003 term maturity.

A Smith Barney officer said that the deal was all sold to institutions.

The final pricing, subject to the federal minimum tax, included serials priced to yield from 6% in 1994 to 6.65% in 1999, while in 2003 term is priced to yield 6.931%.

The bonds are rated A by Moody's Investors Service and A-plus by Fitch Investors Service.

In addition, market sources said a PaineWebber Inc. group tentatively priced $101 million New York State Judicial Facilities lease revenue refunding bonds for Suffolk County.

The offering consisted of Future Income Growth Securities, also known as FIGS. Sources said that the bonds were tentatively priced as 9s to yield 7.20% in 2001, while bonds in 2006 and 2014 carried coupons of 9.25% and 9.50% respectively. They were not formally reoffered to investors.

The bonds are similar to capital appreciation bonds, where the investment return on an initial principal amount is reinvested at a statted compound rate until maturity.

But FIGS vary from CABs because they bear interest payments on April 15, 1993, after converting to a current coupon on July 1, 1992, instead of at maturity.

A PaineWebber official said earlier this week that institutions would be targeted as buyers.

The issue is rated Baal by Moody's.

In secondary action, traders termed bid-wanted flow moderate, but there were some blocks out for the bid in the $10 million range. Bids continue to hold in, although trading activity has slowed compared to last week.

In secondary dollar bond activity, prices were mostly unchanged on the day.

East Bay California 6 1/2s of 2016 were quoted at 99 3/8-99 5/8 to yield approximately 6.53%. New York State LGAC 7s due 2021 were quoted at 99 7/8-100 to yield 6.99%. Insured Triborough Bridge and Tunnel Authority 6 5/8s of 2017 were quoted at 99 3/8-99 1/2 to yield 6.66%.

In short-term note activity, traders reported yields narrowly mixed on the day.

In late secondary trading, Los Angeles notes were quoted at 4.20% bid, 4.15% offered, while March New York State Trans were quoted at 4.95% bid, 4.90% offered. Texas notes were quoted at 4.15% bid, 4.10% offered; Pennsylvania paper was quoted at 4.25% bid, 4.20% offered.

Note traders cited a thin market, which they said bodes well for New York City's sale of $1.3 billion GO revenue anticipation notes.

Market sources said that preliminary price talk on the issue was for a reoffering yield between 5% and 5.10%.

Negotiated Pricings

Smith Barney as senior manager priced $47 million New Mexico severance tax refunding bonds.

The offering included serials priced to yield from 4.25% in 1992 to 5.20%. All bonds were priced at par.

The issue is rated Aa by Moody's and Standard & Poor's.

Vermont offered $23 million general obligation refunding bonds, priced by a Merrill Lynch & Co. group.

The issue included serials priced to yield from 4.70% in 1993 to 6.10% in 2004.

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

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