Investors swarm to California municipal bond sale
Individual investors scooped up $690 million worth of new state bonds Monday and Tuesday, providing a boost to state Treasurer Bill Lockyer’s pioneering campaign to persuade Californians to buy personal stakes in the Golden State’s future.
The bond sale got a boost from a $250,000 test marketing program that featured print and radio ads that ran in the San Francisco Bay Area and along the Central Coast.
It urged state residents to invest in bonds for bridges, roads, universities and other needed public works.
One print advertisement, featuring a photograph of the Golden Gate Bridge, reminded readers that the San Francisco landmark is “our bridge. And it was paid for with bonds.”
It added, “Now you have a chance to be part of California history.”
To sweeten the deal, the ad let investors know that the state pays broker fees on bond purchases by individuals.
“It did seem to make a significant difference in people’s awareness of the bonds and their desire to buy them,” Lockyer said Tuesday. “We’re very pleased with the amount of individual sales.”
The treasurer plans to analyze the sale to confirm his belief that the jump in purchases by individuals was supported by a first-ever “Buy California Bonds” advertising campaign.
Lockyer called the successful sale a good deal for both the individual buyers and California taxpayers.
He noted that because individual investors generally hold securities longer than institutions, such as mutual funds, bond yields tend to be slightly lower, saving money for the state government.
Retail orders from Monday and Tuesday’s sale to individuals accounted for 28% of the planned $2.5-billion offering of California tax-free general obligation bonds.
The remaining $1.81 billion is scheduled to go on the market for purchase by banks, brokers and other institutional investors today.
The volume of individual bond purchases -- in lots of $5,000 -- was four times greater than a similar state bond sale in the spring, the treasurer’s office said. And bonds with maturities ranging from 2009 to 2017 were sold out.
Lockyer said the final interest rate paid on the bonds would be set after the transaction closed. The yield is expected to range from 4% to 4.7%.
Buying the tax-free bonds directly from the state through brokers is “definitely a benefit for sophisticated bond investors,” said Antonios Sangvinatsos, an assistant professor of finance at USC’s Marshall School of Business.
“This development,” he said, “will help the investors get more favorable prices.”
