California Sells $500 Million in Bonds

California sold $500 million in general obligation bonds amid robust investor demand. The offering, in various maturities, was purchased by brokerage Merrill Lynch & Co. and resold to investors. Only about $59 million of the bonds remained unsold by midafternoon, the firm said. Though the state is running a large budget surplus, it is considered a double-A credit by major rating services, below the highest rating of triple-A. Nonetheless, yields on some of the California bonds sold were below what comparable triple-A muni bonds pay. For example, Merrill Lynch priced the bond maturing in 2007 to yield 4.80% annually, compared with a 4.93% average on triple-A bonds as measured by Bloomberg. Because interest on California muni bonds is exempt from federal and state income tax, the true yields are much higher for investors, especially those in top tax brackets. Proceeds from the bonds will finance school construction, strengthen public buildings against earthquakes and finance water-related improvements.