California’s Borrowing Costs Narrow for Bonds

California’s borrowing costs, the highest among U.S. states, narrowed against top-rated debt in a $500-million general-obligation bond sale Thursday, a sign investors see less risk because of Gov. Arnold Schwarzenegger’s efforts to avert a cash crunch.

The 20-year bonds the state sold in the offering had a tax-free yield of 5.12%, or 0.27 point more than what municipal borrowers with the highest credit rating would pay, according to a Municipal Market Data index.

When it sold 20-year bonds two months ago, California paid 5.23%, about 0.49 point more than AAA-ranked sellers at the time.

“It is much tighter than in previous deals,” said David Blair, an analyst with Nuveen Investments Inc., the largest manager of closed-end municipal bond funds. “The improving sentiment toward California is being supported by increased prospects for progress in resolving the state’s budget problems.”

On Monday, California sold nearly $3 billion in variable-rate deficit-plugging bonds, the second installment of a borrowing program to refinance budget deficits the state has racked up in recent years.