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Market Post: FI Markets Rally, Then Fall on FOMC Announcement; Munis Not

NEW YORK – Tax-exempts continued to weaken as other markets rallyed then fell after the Federal Open Market Committee announcement. Still, most of the remaining large deals of the week were priced by Wednesday afternoon.

The biggest headline in the fixed-income market was the FOMC’s announcement that it plans to keep federal funds rate target at zero to 0.25%, and will extend its “operation twist” program until the end of the year, with the Fed purchasing an additional $267 billion in long-term securities.

“While we expected an extension of Twist, we thought it would be a three-month extension, in part because we did not expect the Fed would want to run its holdings of short-dated paper down to essentially zero,” wrote economists at RDQ Economics. “Instead, the Fed delivered a six-month extension at roughly the same pace and in exactly the same maturities – sell zero- to three-year paper and buy 6-year-plus paper.”

After that announcement, Treasuries rallied on the long end as the yield curve flattened. The benchmark 10-year yield fell five basis points to 1.63% from where it traded Wednesday morning while the 30-year yield fell seven basis points to 2.72% from morning levels. The two-year yield jumped to 0.32%.

The rally in Treasuries did not translate over to munis as the tax-exempt market continued to weaken. Inside 11 years, yields were steady. Outside 12 years, yield rose as much as three basis points.

On Tuesday, the 10-year and the 30-year yield finished flat at 1.86% and 3.15%, respectively, for the third consecutive trading session. The two-year yield was flat at 0.32% for the 13th straight session.

In the primary market, JPMorgan priced $580.7 million of Louisiana general obligation refunding bonds in taxable and tax-exempt series. The bonds are rated Aa2 by Moody's Investors Service and AA by Standard & Poor's and Fitch Ratings. The first series of $436.4 million will be tax-exempt follow by a taxable series of $144.3 million. Pricing details were not available by press time.

Goldman, Sachs & Co. priced and repriced $624.9 million of Colorado Housing and Finance Authority revenue bonds in taxable and tax-exempt series, rated Aa2 by Moody's and AA by Fitch.

The first portion of $540 million is taxable bonds, yielded 0.45% price at par in 2013. The yield was lowered five basis points from preliminary pricing. Prices on credits maturing between 2014 and 2017 were not available by press time.

The second portion $84.9 million of tax-exempt bonds yielded 0.45% with a 5% coupon in 2014. The yield was lowered five basis points from preliminary pricing.

In the competitive market, JPMorgan won the bid for $141.6 million of Georgia GOs. Pricing details were not available.

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