Individual investors drive $1-billion state bond sale
Strong demand by individual investors helped California sell $1 billion in tax-free bonds Thursday at a time when some institutional investors have pulled away from municipal securities.
State Treasurer Bill Lockyer said individuals bought 35%, or $350 million, of the general obligation bonds, which will finance various infrastructure projects.
By contrast, individuals bought 28% of a $2.5-billion state bond offering in June.
“We’re certainly pleased with the results,” said Tom Dresslar, a spokesman for Lockyer.
Lockyer has been trying to boost individual investors’ demand for state bonds as a way to reduce the power institutional investors can exert in determining interest rates on the IOUs. More competition for the bonds could save taxpayers money over time by holding down rates.
The latest California offering was in securities maturing from 2008 through 2037. The 30-year bonds pay a yield of 4.86%. Because that yield is exempt from federal and state income tax the true return can be significantly higher, depending on an investor’s tax bracket.
Individuals bought all of the bonds maturing in 2023, 2027 and 2033. “We likely would have had to pay a higher interest rate to sell those maturities to institutional buyers,” Dresslar said.
The credit crunch that has roiled the financial system has caused some skittish big investors to pull back from buying any IOUs other than U.S. Treasuries in recent weeks. That has pushed up yields on long-term California bonds.
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