Dec. 10 (Bloomberg) -- Harvard University sold $1 billion of tax-exempt debt, expanding its offering and cutting yields to take advantage of demand for the highest-rated securities, as bonds in the broader municipal market extended declines.

Cambridge, Massachusetts-based Harvard, the oldest and wealthiest U.S. college, offered yields ranging from 3.15 percent on six-year bonds to 5.8 percent on securities set to mature in 2036. Underwriters led by JPMorgan Chase & Co. garnered enough buyers to raise prices and cut yields on some maturities by two basis points, or 0.02 percentage point.

“There was great demand from the get go,” said Dexter Torres, head trader at New York-based fixed-income investment manager Samson Capital Advisors LLC. “It’s one of those sought- after names that the market’s going to take on with no problem.”

Benchmark yields on 30-year general obligation bonds rose four basis points today to 5.84 percent, a seven-week high, according to Municipal Market Advisors. Investors demanded even higher yield increases on lower-rated debt.

“The secondary’s been a little painful,” Torres said.

Harvard’s tax-exempt offering follows a $1.5 billion taxable bond sale last week. The university is refinancing variable-rate securities, paying off commercial paper and funding payments to terminate interest-rate swap agreements.

The Massachusetts Health and Educational Facilities Authority arranged the deal. The state authority also issued debt on behalf of another university in Cambridge: the Massachusetts Institute of Technology.

MIT Offering

MIT raised about $266 million to fund campus construction projects in a bond sale run by Barclays Plc, which bought Lehman Brothers Holdings Inc.’s U.S. brokerage after its parent company went bankrupt in mid-September.

The school, like Harvard rated AAA by Standard & Poor’s and Aaa by Moody’s Investors Service, attracted lower yields for its smaller deal, such as 5.7 percent on bonds due in 2036.

Seattle led municipal governments selling debt via bidding among investment banks today. The city’s municipally owned electric utility sold $259 million of revenue bonds through winning-bidder Merrill Lynch & Co. Yields weren’t available for most of the bonds, because they weren’t immediately reoffered to investors in the open market.

Tax-exempt bonds have dropped 8 percent in 2008, heading for their worst annual performance since Merrill started compiling its Municipal Master Index in 1989.

To contact the reporter on this story: Jeremy R. Cooke in New York at jcooke8@bloomberg.net.

Last Updated: December 10, 2008 15:56 EST