Municipals fell yesterday as warmer Midwestern weather and hotter commodities prices proved a forecast for pain on the government side.

"The high-grade market started to fall off [between 10:30 a.m. and 11:00 a.m.] this morning," a municipal analyst said, adding that while dollar bonds initially held up, they started to give in the late afternoon.

Dollar bonds ended 3/8 to 1/2 point lower. Yields on highgrade issues rose five basis points overall to selectively more in the intermediate range. The 30-year Treasury bond closed down more than a point to yield 7.40%, while the Commodities Research Bureau's index closed up nearly 3 1/8 points.

The analyst also cited "big bid lists [in] excess of $500 million."

A trader also cited brisk selling yesterday. "We had 13 customer lists in here this morning. So there was a lot of customer selling," he said.

The trader, however, witnessed a more precipitous price drop than the analyst.

"I'd say we're down at least a point in cash," he said. Cash, the trader said, was moving pretty much in line with the September municipal contract, which closed down more than 1 1/4 points to 91 3/8s.

Yesterday's September MOB spread was negative 388, compared to negative 385 on Tuesday.

Dealer inventories rose for the fourth straight day with Standard & Poor's Corp.'s blue List increasing $57 million yesterday, to $1.74 billion from $1.68 billion. That's the highest level since may 17 when the Blue List was at $1.87 billion. In the past four days the measure of dealer inventories has jumped $323 million.

In the primary market, a Lehman Brothers group priced and repriced $500 million Metropolitan Washington Airports Authority airport system revenue bonds.

The offering consisted of serial bonds priced to yield from 4.55% in 1997 to 6% in 2011. A 1966 maturity was not reoffered.

A 2015 term was priced to yield 6.11%, a 2020 term was priced to yield 6.205%, a 2021 term was not reoffered, and a 2024 term was priced to yield 6.228%.

At the repricing yields on the 2015 and 2020 terms were raised by a basis point, while the yield on the 2024 term was raised two basis points.

James A. Wilding, general manager of the authority, said he was "very pleased" with the offering, which marked the authority's biggest to date.

Richard J. Moynihan, president of Dreyfus Municipal Funds, said he is interested in the authority's offering and may still pick some bonds up in the secondary, but passed on the offering yesterday because of the market.

"Today was a little too skittish for us," Wilding said.

Some other portfolio managers yesterday seemed to have little appetite for any new paper.

"It's just too hot, we are way ahead of ourselves right now," said Joe Deane, a managing director and portfolio manager of the Smith Barney Shearson Managed Municipals Fund. "I can't conceive of you showing me something I would own."

Frank Lucibella, a second vice president at John Hancock Mutual funds, said he is virtually fully invested at this point and plans to sit tight for now.

"It seems as though the market came a long way pretty quickly last week, and some of the levels to me seem a little bit high," Lucibella said.

New York City

Investors are eyeing an offering of $208 million of tax-collection backed notes to help New York City plug a fiscal 1994 budget gap. The issue is being underwritten by Chemical Securities.

A preliminary official statement for the issue says that the notes are due on June 15, 1997. but buyside sources said the city plans to repay the notes sometime in 1995. As a result, current price talk on the securities is 65 to 70 basis points above a 4 1/4% Treasury security maturing in January 1995.

Capital Markets Assurance Corp. will provide insurance for the notes, which are taxable.

The deal has been a controversial one for Mayor Rudolph W. Giuliani. Fiscal monitors for the city have called the transaction the equivalent of deficit financing.

Under the terms of the deal, the city will sell its delinquent property taxes to a trust, which will pay the city through the issuance of the notes.

Recently, Giuliani said the city cut the size of the issue to $208 million from $215 million after receiving additional funds from the sale of the New York Coliseum. city officials could not be reached for comment.

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