State’s Short-Term Notes Sell Briskly

California sold the first stage of its record $5-billion short-term debt issue at yields lower than expected Wednesday.

The notes, which raise cash to fund government operations while the state awaits normal tax payments, saw robust demand from individual Californians and institutional investors--despite the state’s still shaky finances.

The state sold $500 million in notes maturing in January at an annualized yield of 2.65%. It also sold $750 million in notes maturing in April and $2.5 billion in notes maturing in May at yields of 2.85%.

The 2.65% yield on the January notes, exempt from federal and state income taxes, is actually worth the same as a 4.4% yield on a taxable bank CD to a Californian in the near-40% maximum federal/state marginal tax bracket.