Municipal bond yields take another hit following Fed comments; some issuers pull offerings

By Sheri Kasprzak

New York, June 20 - Municipal yields climbed again on Thursday in response to comments made by Federal Reserve chairman Ben Bernanke about taking steps to moderate the pace of bond buying.

The path laid out by Bernanke would stem bond buying by later this year and into early 2014.

"Despite the largely as-expected nature of the chairman's path, the interest rate markets sold off sharply, with the 10-year note making the biggest one-day move since 2011," wrote Guy LeBas, chief fixed income strategist with Janney Montgomery Scott LLC.

"Yields on the benchmark note rose 17 basis points to 2.35%, while two-year yields rose 4 bps to 0.31%. This morning [Thursday], the curve is selling off further, with tens coming in slightly north of 2.40%, yet 10-year inflation break-evens are trading down to their lowest level in 12 months, and real yields are now at the same level as when Operation Twist was introduced in 2011."

Offerings postponed

The Fed comments drove investors away from the market, causing some issuers to pull their deals off the calendar.

"It looks like some deals are off, at least for now," said a trader reached in the afternoon.

"Right now, it's not pretty. Long bonds are getting hit, probably up 5 bps."

The 30-year MMD index was up 5 bps on Wednesday, when the Treasury yield ended the day 7 bps higher at 3.41%, making for a municipal-to-Treasury ratio of 105%.

Meanwhile, in the past week, mutual fund investors withdrew $3.2 billion from tax-free funds, said Alan Schankel, managing director with Janney. This makes $5.5 billion of outflows for the past two weeks.

Educational loan bonds price

During the session, the Massachusetts Educational Financing Authority came to market with $223,225,000 of series 2013K education loan revenue bonds, said a pricing sheet.

The bonds (/AA(sf)/) were sold through lead manager Morgan Stanley & Co. LLC.

The bonds are due 2015 to 2025 with term bonds due in 2029 and 2032. The serial coupons range from 2% to 5%. The 2029 bonds have a 5.25% coupon and priced at 98.932, and the 2032 bonds have a 5.375% coupon and priced at 99.118.

Proceeds will be used to refund the authority's series 2002, 2003, 2004, 2006 and 2007 revenue bonds.

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