Municipals, weighed down by supply, sank for the sixth session in a row yesterday, sending bond prices two points lower on the week.

Meanwhile, a new annual municipal bond and note volume record was set on Wednesday, with combined volume reaching $229.05 billion, topping the 1985 record.

Characterizing the technical position in the tax-exempt arena, news of the record volume turned heads, but surprised few players.

Market participants have been strapped by supply for months, and the avalanche of bonds finally buried the Street this week.

"The snowball is building," said one trader. "The tone is heavy, to say the least, and people are talking about funds selling to meet redemption costs. The market has to adjust to supply."

Technical pressure has been so great that Treasury market rallies, which usually give a boost to tax-exempts, have barely supported the Street.

Still-low interest rates have attracted a considerable amount of issuers, eager to refund high-yielding bonds priced in the early to mids. 1980s.

As a result, total volume, including notes and bonds, through Oct. 21, 1992, was calculated yesterday at $229.05 billion.

According to preliminary figures compiled by The Bond Buyer from Securities Data Co.'s data base, state and local issuers sold $186.39 billion of long-term bonds and $42.66 billion of short-term notes through Oct. 21, 1992.

The combined total surpassed the previous high of $228.78 billion set in 1985, when $206.98 billion of bonds and $21.8 billion of notes were issued.

Supply Pressures

Reflecting heavy supply in the secondary market as well, The Blue List rose $11 million, to $1.88 billion. The Bond Buyer calculated 30-day visible supply at $6.68 billion.

Traders estimated a whopping $300 million or more of bid-wanteds yesterday, generated mostly by funds.

Tax-exempts mostly ignored wild gyrations in the Treasury market, and prices fell 1/4 to 1/2 point, depending upon the name.

"The market has held in remarkably well, considering the selling in the secondary," a trader said "Without the strength in the government market, we probably would have free fallen. Supply is overwhelming demand, and there are plenty more deals in the works."

In the debt futures market, the December contract settled down 6/32, to 94.10. The MOB spread widened dramatically, hitting negative 275, compared to negative 257 Wednesday.

NYC Bonds Freed

New-issue activity was extremely light, but in follow-through business, Lehman Brothers as senior manager freed $778 million New York City bonds to trade in the secondary market.

In late action, serial bonds were said to be trading less 1/4 to 3/8 point from the net, while long bonds were said to be trading 3/4 to 5/8 point lower than the original price.

In other follow-through business. Lehman, also senior manager for $174 million Wisconsin GOs, reported all bonds sold and the account closed.

Prudential Securities Inc., senior manager for $86 million Nassau County, N.Y., general improvement bonds, reported an unsold balance of $31 million.

In secondary dollar bond trading, prices were unchanged to as much as 1/2 point lower.

In late action, California GO 6 1/4s of 2019 were quoted at 6.59% bids, 6.55% offered; New York City Water and Sewer 6 3/8s of 2022 were quoted at 95-1/4, to yield 6.767% on the bid-side; and Washington Public Power Supply System 6 1/2s of 2015 were quoted at 97 1/4-1/2, to yield 6.737%.

Puerto Rico GO 6s of 2014 were quoted at 93 3/8-5/8, to yield 6.577%; Denver Airport Authority AMT 6 3/4s of 2022 were quoted at 92 1/4-93 1/2, to yield 7.39%; and Florida Board of Education 6s of 2025 were quoted at 93-1/4, to yield 6.52%.

In the short-term note sector, yields were unchanged to three basis points higher on the day.

In late trading, Los Angeles Trans were quoted at 2.90% bid, 2.88% offered; notes of New Jersey, Pennsylvania, Texas, and Wisconsin were all quoted at 2.90% bid, 2.88% offered.

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