Cleveland's inability to pay off the $15.5 million in notes that came due yesterday will make it next to impossible for ohio's largest city to borrow in national credit markets for some time to come.

Even before the deadline for default passed at midnight - the six banks holding the lion's share of the notes stayed open late to see if an accommodation could be reached - one of the two major firms that evaluate municipal securities downgraded the city to a Caa rating.

Moody's Investors Service said yesterday afternoon that even if the city found a way to refinance its debt, Cleveland's problems were so severe that a further downgrading of the city's securities was in order. Any C rating is a red flag to potential investors. Cleveland held an A rating as recently as June 8.

The default probably rules out any chance that Cleveland could float a $90 million bond issue next March as Mayor Dennis J. Kucinich had hoped. The young mayor wanted to consolidate many of Cleveland's debts and buy some needed equipment with the bond issue proceeds.

Even if the city eventually pays off the notes, as it is likely to try to by cuttingt back services to conserve incoming cash, "investors are basically conservative and have long memories," according to a leading bond analyst.

While Cleveland is in default, it is neither bankrupt nor insolvent yet. It did not have the cash on hand yesterday to pay off the banks when they presented the notes to the city treasurer.

The banks declined to extend the notes automatically, or "roll them over," unless the mayor and the City Council could agree on a plan to redo the city's finances.

Although the city did not have enough cash on hand to pay off the notes yesterday, the city is paying most of its other bills-except for those to Cleveland Electric Illuminating Co. for the electricity a cityowned utility buys from CEI. The City Council wants Kucinich to sell the municipally owned utility.

Default, the inability to pay a debt, is different from bankruptcy, which is a legal determination of insolvency requiring the courts to appoint a receiver to manager the city's finances.

Detroit was the last major city to default on its debts - in 1933 - although the city eventually paid back the funds to investors.

While Cleveland will find it nearly impossible to borrow without major changes in its financial posture, other state and local governments outside of Ohio are unlikely to feel much of the sting of Cleveland's default.

The markets have long known of Cleveland's difficulties-Standard & Poor's, the other major bond ratingfirm, suspended Cleveland ratings altogether several months ago-and "have discounted them," according to one analyst.

In any event, Cleveland's difficulties do not seem to have deterred local governments from rushing to the bond markets in recent weeks.

These state and local governments appear worried about paying higher interest rates in the future. Their worries are not spurred by the potential of Cleveland default but by continuing inflation and ever tighter monetary policy by the Federal Reserve Board.

"The biggest problem the municipal bond markets face is not Cleveland, but an oversupply of new bonds," one leading bank analyst said yesterday.

In the last two weeks major issues have been floated by New Jersey, California, Pennsylvania, Massachusetts and dozens of smaller local governements. All told, more than $1 billion of tax-exempt offerings were announced this week. $"We're suffering from indigestion," the bank analyst said.

But experts expect most of the issues to be sold with little difficulty, even though December is usually the slowest month in the nation's bond markets.

For the rest of the municipal bond market, the Cleveland situation is "really a ho-hum kind of thing," said one major analyst. "It's a matter between Cleveland and the local banks."

But most New York analysts said they were mystified that the Cleveland banks, which hold about $14 million of the $15.5 million in maturing notes, would go to the wall over a sum as modest as that involved unless they have many deeper concerns about Cleveland's finances.

"Let's face it," said one securities analyst, "the banks suffer nearly as much as the municipality in the case of a default. Look at what happened here in New York."