Long-term tax-exempt bond prices gained 1/4 point in light, dealer trading Friday on weaker-than-expected July jobs figures.

The advance in the municipal market significantly trailed the more than one-point improvement in the government bond sector, but traders pointed out that this week's $3.7 billion volume -- a high for 1991 -- kept a lid on prices.

The short end fared much better as yields on outstanding tax-exempt notes fell 15 basis points and the market firmed to 4.88% bid, 4.85% offered on the last week's New York City tax anticipation notes.

In the debt futures market, municipals also lagged well behind governments. The September municipal contract did climb 21/32 to settle at 92 26/32, but the government bond soared 44/32 pushing the MOB to negative 100. It was a negative 57 as recently as recently as July 23.

After the Labor Department reported that nonfarm payrolls fell 51,000 in July when a gain of at least 65,000 had been widely anticipated, traders were hopeful that the Federal Reserve would signal an easing at the usual time of its open market desk's entry into the market. But the Fed stayed out of the market and appears to still be on hold for the time being.

Not all interpreted the weak employment numbers to be a sign that the economy is slipping back to a recession. Many economists are still seeing a turnaround, but a weak recovery.

Michael Moran, chief economicst at Daiwa Securities America Inc., said Friday that the July employment numbers were "clearly weak, but we're going to have setbacks" in a mild recovery such as this one. But the economy is "not sliding back," he argued.

But mild recovery or double-dip recession, traders were in agreement on Friday that the municipal market's main concern for now is the supply.

Not only does it face a hefty calendar this week, but The Bond Buyer 30-day visible supply is also at a 1991 high of $5.4 billion, including $3.3 billion of negotiated offerings -- also a high for the year.

John F. Noonan, vice president and manager of municipal finance at John Nuveen & Co., said Friday that he saw no letup in new issuance in the last half of the year and suggested that long-term volume could reach $150 billion. Volume for the first six months came in at $74 billion and Mr. Noonan said that second-half volume would match it.

But Mr. Noonan argued that there would be ample investor demand to accommodate the supply and that interest rates should trend lower over the last six months. He pointed out that about $30 billion of high coupon bonds sold in the 1981-83 period have been advanced refunded and the proceeds of these issues will be coming back to investors over the next three years.

They will look to put their money back into municipals, one of the last remaining tax advantages for investors, Mr. Noonan said.

In dollar bond trading Friday, Florida State Board of Education 7 1/4s, due 2023, moved up 1/4 to 102 3/4-103 1/4 to yield 6.86% to the 2004 par call. A more recent issue of 6 3/4 of 2021 were also 1/4 better at 98 1/2-5/8, where they also returned 6.86%, but to maturity.

New Jersey Turnpike Authority 7.20s of 2018 were unchanged at 103-103 1/4 yielding 6.64% to the 1999 par call and 6.80% to the premium call in 1993.

New York LGAC 7s of 2016 was one Friday's big gainers, climbing 1/2 to 97 1/2-3/4 to yield 7.20%. And Puerto Rico Electric Authority 7s of 2021 inched up 1/8 to 98 1/8-1/4 to yield 7.14%.

Outside of the note sector, the prerefunded bond market turned in the best performance Friday as yields fell seven basis points on some issues prerefunded into 1995. Bonds traded at one point at 5.69% with the market closing around 5.73% bid, 5.69% offered.

Not traders said that the dealer float for the $1 million New York City issue was showing signs of shrinking, but that there were still plenty available. They are still trading on a when-issued basis and not for cash, so lthere is no problem right now, traders said. The money market funds should be ready to buy by the time the Aug. 7 settlement date comes around, one trader reasoned.

The short-term market this week faces a new $4.1 billion California issue.

In other note activity, New Jersey 5s were quoted late in the day at 4.80% bid, 4.75% offered with the market for New York State 5.40s at a tight 5.26%, 5.25%.

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