The market for tax-exempt municipal bonds bounced around Wednesday before the Federal Reserve's announcement that it would slow its policy of quantitative easing sent yields higher at the end of the day.

The Fed will "modestly reduce the pace of its asset purchases," the Federal Open Market Committee said in a statement released Wednesday following a two-day meeting.

Beginning in January, the Fed will buy longer-term Treasuries at a rate of $40 billion per month and mortgage-backed securities at a rate of $35 billion per month, compared with the current rate of $45 billion and $40 billion, respectively.

"They might as well just rip the Band-Aid off and do it," a trader in New York said. "We figured that it was going to eventually happen and honestly, what's the difference if they do it now or later? The Fed doesn't want yields to come off but they know it's going to happen so they needed to just bite the bullet."

Participants in the muni market have faced an ongoing threat of the Fed reducing its monthly asset purchase program since it first introduced the idea of tapering in the spring. Many traders agreed that the impact of a taper has already dented the municipal market, saying the actual onset of a taper may end up pushing yields just slightly higher.

"We priced it in over the past couple of weeks and back to May; now we're officially seeing its effect today and we're off anywhere between two to four basis points," the trader said.

Treasuries weakened across the curve Wednesday.

The benchmark 10-year jumped five basis points to 2.89% and the 30-year gained three basis points to 3.90%. The two-year yield rose two basis points to 0.34%, after rising as high as 0.36% earlier in the day.

"After the Fed taper announcement, markets remain steady," Interactive Data said in its daily report. "High yield was generally mixed to unchanged, while muni taxables saw some moderate secondary trading, with spreads generally unchanged as yields rose a few bps with benchmark yields."

Yields on the Municipal Market Data triple-A scale Monday were steady from 2014 to 2026, and lower on the long end of the curve. Bonds maturing between 2027 and 2040 saw yields drop as much as a basis point, and those maturing in 2041-2043 fell up to two basis points.

Yields on the Municipal Market Data triple-A scale Monday were largely unchanged throughout the curve, with yields on bonds with maturities in 2021 falling as much as one basis point.

"We sold off today and then we pushed back a little and at the end of the day we sold off again," a New York-based trader said. "We're seeing a slight bit more volume and a bunch of bid-wanteds out there the past week, making it a good buying opportunity right now."

The trader echoed others in the market who said a minor end-of-year selloff is occurring in munis as investors look to clean their portfolios of poorly performing bonds before the end of the year. Selling those losing bonds gives the portfolio a tax break, traders said.

Estimates for this week's volume show a lighter offering of new issues, with potential muni bond volume on the week expected to be $2.59 billion, according to data from Ipreo, The Bond Buyer and Thomson Reuters. That compared with $10.63 billion of sales in the week before.

The biggest deals of the week priced Tuesday, including $283 million of Guggenheim Securities LLC-led Pennsylvania parking revenue bonds and $112 million of Goldman, Sachs & Co-led El Paso, Texas, general obligation bonds.

RBC Capital Markets also priced $138.7 million of Colorado State University revenue bonds Tuesday afternoon that received final pricing Wednesday.

The bonds are enhanced by a state intercept program and have underlying ratings of Aa2 by Moody's Investors Service and AA-minus by Standard & Poor's Ratings Services.

Yields on the bonds ranged from 0.25% with a 3% coupon maturing in 2015 to 4.61% with a 5% coupon maturing in 2045. The bonds are callable at par in 2023.

Southwest Securities Inc. priced $97.2 million of tax-exempt and $23.1 million of taxable La Quinta redevelopment bonds that received final pricing Tuesday afternoon. The tax-exempt bonds were rated A-plus by S&P, while the taxable ones featured insurance by Assured Guaranty.

Yields on the tax-exempt bonds ranged from 0.38% with a 3% coupon in 2014 to 4.89% with a 4.75% coupon in 2033.

Also on Tuesday, E.J. De la Rosa & Co. priced $21 million of Orange County, Calif., bonds with yields ranging from 0.66% with a 3% coupon maturing in 2014 to 4.17% with a 5% coupon in 2023.

"Investment-grade credit spreads continued to tighten this week, most recently more than seven basis points tight of the November close, whereas high-yield spreads widened almost three basis points since last week's end," Lurie said.

Trades in the secondary market were weaker on Monday, according to data from Markit.

Temple University, Philadelphia, Health System revenue bonds maturing in 2042 with a 5.625% coupon gained a basis point to 6.95%, while University of Washington revenue bonds maturing in 2031 with a 5% coupon softened by three basis points to 2.04% San Juan County, N.M., school refunding bonds maturing in 2025 with a 3.25% coupon also rose three basis points to 3.33%.

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