TVA sells bonds at record low rate

The Federal Reserve Bank's policy of keeping interest rates low until the economy rebounds is cutting one of the biggest expenses for the Tennessee Valley Authority.

TVA said Wednesday it expects to save $25 million in annual interest expenses from a 30-year bond priced this week at a record low rate. TVA said its new 30-year global power bonds carry an interest rate of 3.5 percent -- the lowest rate ever on a TVA 30-year note. The new bonds will replace part of a 6 percent bond issue maturing in March, saving $25 million on that amount of the remaining debt.

"The favorable interest rate environment and stable market allowed us to achieve the lowest interest rate on any TVA institutional financing of more than 10 years," TVA Treasurer John Hoskins said in a statement.

TVA officials said they tried to take advantage of a window of opportunity during the fiscal negotiations and the holiday season to obtain the low-cost financing. TVA spokesman Duncan Mansfield said the interest rates to be paid on the new TVA debt are the lowest for a 30-year note since the federal utility began issuing such long-term debt.

TVA is a self-funding corporation owned by the federal government. But bond rating agencies give TVA a top rating based upon the implied backing of TVA debt by the federal government.

TVA bond rates are priced slightly above comparable-term U.S. Treasury bonds. But the yields on nearly all government debt has been held in check by the decision last week by the Federal Reserve to continue to purchase longer-term Treasury securities until the U.S. unemployment rate fall bellow 6.5 percent. Initially, the Fed is buying about $45 billion a month in Treasurys.

In fiscal 2012, TVA spent more than $1.4 billion, or 13 percent of its budget, on interest expenses on its $26 billion debt.