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California completes debt sale

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Investors’ desperation for decent income played into California’s hands this week as the state wrapped up its mammoth sale of $8.8 billion in short-term debt.

The offering drew bids totaling $9.23 billion as institutional investors fought Wednesday to get the relatively little that was left over after individual investors snapped up most of the securities.

Institutions such as mutual funds bid for $2.59 billion of the notes but will get only $2.16 billion because the state is filling all the $6.64 billion in prior orders from individuals.

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The notes that mature May 25 will pay an annualized tax-free yield of 1.25%; the notes maturing June 23 will pay 1.5%.

Those are paltry returns, but they beat what investors can find on most other short-term securities -- which is why the turnout for the note sale was so huge despite the state’s weak overall credit rating. The average money market mutual fund yields a mere 0.06%.

“People are really hungry for yield,” said Marilyn Cohen, head of Los Angeles bond investment firm Envision Capital Management.

A year ago, during the financial crisis, California had to pay yields averaging 4% to borrow via short-term debt.

The securities sold this week, known as revenue anticipation notes, bring the state cash it needs until expected tax revenue arrives later in the fiscal year. The proceeds also will be used to repay a $1.5-billion loan the state got from JPMorgan Chase & Co. last month.

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tom.petruno@latimes.com

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