Blue River hedge fund sets Wed investor conference

NEW YORK, March 7 (Reuters) - Blue River Asset Management, a hedge fund that made big bets on U.S. municipal bonds, plans to talk to its investors on Wednesday after last week's sharp drop in tax-free bond prices, a municipal bond market source said on Friday.

"Blue River put out a letter saying we are going to have some kind of conference call," said the source, who requested anonymity.

Blue River officials were not immediately available to comment.

JPMorgan (JPM.N: Quote, Profile, Research, Stock Buzz) on March 3 said it had persuaded new and existing investors to inject $100 million of fresh capital into Blue River, one of several hedge funds that were forced to sell billions of dollars municipal bonds.

A spokesman for JPMorgan had no immediate comment.

Hedge funds last week swamped the $2.6 trillion bond market with billions of dollars of tax-free debt because they were hit with margin calls after their borrowing costs spiked at the same time that the value of their muni bonds plunged.

Blue River was one of several big sellers, a list that also included Duration Capital, 1861 Capital Management and a number of smaller hedge funds.

The selling continued this week, though the rate slowed. This week's sellers also included Citigroup's Alternative Investments (C.N: Quote, Profile, Research, Stock Buzz) and Deutsche Bank's (DBKGn.DE: Quote, Profile, Research, Stock Buzz) proprietary desk, market sources have said.

Cash-rich investors swept into the muni market after tax-free yields rose as much as 30 percent more than those offered by competing Treasuries. That was an extraordinarydevelopment because investors must pay taxes on Treasury bonds, which is why those vehicle usually yield more than muni bonds.