Demand in Record State Bond Sale Called Decent

California sold a record $1.39 billion worth of bonds on Wednesday, and investors gave the securities a decent--but not great--reception.

A group of brokerages led by Goldman, Sachs & Co. bought the entire offering, and by late in the day the firms still had $463 million of bonds left to sell to investors.

If public demand had been overwhelming, the brokers would have placed virtually all of the offering on Wednesday, analysts said.

Nonetheless, the state ended up paying an average yield of 6.16% on the bonds, only slightly above the 6.06% average at the last big California bond sale in November.

The $1.39-billion offering consisted of bonds of various maturities, with the longest-term bond a 20-year issue maturing in the year 2012.

A Goldman official said most of the bonds still available for sale are in the four- to 10-year range.

The five-year bonds yield 5.1% annually, free of federal and state income taxes.

For a California taxpayer in the top 37.4% combined federal-state tax bracket, that 5.1% yield is equivalent to an 8.1% taxable yield, such as on a bank CD.

On 10-year bonds the yield is 6%, the same as a 9.6% taxable yield for a top-bracket taxpayer.

California’s credit rating was recently cut from AAA to AA by major rating services.

Though still high, the AA ranking shows Wall Street’s concern about the state’s budget and economic problems.

Wednesday’s bonds are part of the backlog of general-obligation issues voters OKd in recent years for new prisons, transit and schools.

State Treasurer Kathleen Brown sees construction financed by these bonds creating 13,300 jobs.

General obligation bonds are backed by the state’s full faith and credit.