Demand strong for state bonds

Lured by good, if not great, tax-free interest rates, individual investors Tuesday snapped up nearly half of California’s offering of $1.75 billion in municipal bonds.

Treasurer Bill Lockyer’s office said individuals, via brokerages, had put in orders for $824 million of the bonds.

The demand led Lockyer to cut short a planned two-day retail order period for the securities. The state said it would take orders from small investors only through noon today instead of through 5 p.m., and only for two bond issues, one maturing 14 years from now and the other in 30 years.

The final yields for all of the bonds in the deal will be set Thursday, when institutional investors bid.

The state’s sale is one of its periodic debt offerings to finance voter-approved infrastructure projects. The bonds are general-obligation issues, meaning they’re backed by the state’s full faith and credit. The interest they pay is exempt from federal and state income taxes for California residents.

Although the tax-free yields on muni issues are almost always attractive to high-income investors, even the less-than-well-heeled have found the bonds appealing this year, particularly compared with low-yielding U.S. Treasury issues.

The 30-year bond in the current state offering, for example, is expected to yield 5.05%. By contrast, the yield on 30-year Treasury bonds is 4.37%. Treasury interest is subject to federal tax but not state tax.

But muni yields have come down since early March, and that has made them less lucrative. In a March offering, a 30-year bond yielded 5.4%.