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State Sells $800 Million in Bonds

California sold $800 million in new general obligation bonds Tuesday, part of the huge backlog of issues that voters have approved for public projects in recent years.

Despite worries about the state’s fiscal health, Wall Street as usual had little trouble placing the majority of the bonds with investors. Two of the three major credit rating agencies rate the bonds AA; the third rates them A+.

Merrill Lynch & Co. led a syndicate of dealers that purchased the bonds from the state at an average interest cost of 4.83%. The dealers are responsible for reselling the bonds to the public, in maturities ranging from one year to 30 years.

A Merrill official in Los Angeles said late Tuesday that about $200 million of the bonds remain to be resold to the public, mostly in the seven-to-15-year maturity range.

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The tax-free annualized yields on the bonds range from 3.8% on five-year issues to 4.40% on the 10-year and 5.24% on the 30-year.

For a California investor in the 37.4% combined federal and state marginal tax bracket (singles earning $52,001 to $115,000 and couples earning $87,001 to $140,000), the 4.40% 10-year yield is worth the same as a 7% taxable yield.

The state is not expected to make another offering of general obligation bonds until spring. The backlog of bonds now is $5.6 billion.


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