Municipals gained 5/8 to 3/4 points yesterday after the Federal Reserve unleashed 50 basis point increases in both the federal funds rate and the discount rate.

The tax-exempt market was up 1/4 point before the tightening, and advanced another 1/4 after the Fed's move, one municipal analyst said. The full 1/2 point gain appeared shaky for a while, but the market eventually used steam from the rally in Treasuries to achieve higher levels. Dollar bonds ended the day 5/8 point higher overall, while yields on high-grade issues generally improved by seven basis points, and more in the longer maturities. Trading was moderate to active.

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