California Tries to Entice Buyers to Tobacco Bonds

California is offering yields as high as 6.5% to entice individual investors to $3 billion of tax-exempt tobacco bonds.

Yields on the bonds that are being sold to small investors were set Monday. The 6.5% yield is on bonds maturing in 38 years. A bond issue maturing in 2012 is offering a yield of 4.70%.

Major tobacco companies in 1998 agreed to pay 46 states about $200 billion over 25 years to settle health-liability claims.

Many states have used tobacco bonds to essentially prepay themselves the money.

The bonds, in turn, will be paid off as the tobacco companies pay up.

Brokers are taking individual investor orders for the California bonds through today.

Analysts said California is being forced to offer generous yields because many institutional investors already are loaded up with tobacco bonds from other states’ sales.