Investors seeking high yields clamor for California income
Individual investors so far have placed orders for 75% of the $4 billion in tax-free bonds the state of California is selling this week -- a huge turnout that may allow Treasurer Bill Lockyer to boost the size of the deal.
The state’s brokerage syndicate will continue taking orders from individuals today. On Wednesday, institutional investors such as mutual funds will put in their orders.
Heavy demand from individuals shows investors were hungry for the relatively high yields the bonds are expected to pay. For California residents, interest on the securities is exempt from state and federal income tax.
Municipal bond yields in general are near or above their levels of June, when the state last sold general obligation bonds to raise money for infrastructure projects. By contrast, yields on other income-generating assets, including Treasury bonds and bank savings certificates, are far below last summer’s levels.
What’s more, California’s budget woes have left it with the lowest credit rating of all 50 states, which means investors expect California to pay more to borrow than many other states, to compensate for the perceived risks.
The state set preliminary annualized tax-free yields on the new bonds ranging from 3.25% on the four-year maturity to 6% on the 27-year issue. Final yields will be set Wednesday.
Tom Dresslar, a spokesman for Lockyer, said the state may decide to increase the size of the deal based on investor response.
But he said it’s also possible that some bond maturities will be oversubscribed. In that case brokerages would fill orders on a first-come, first-served basis, Dresslar said.
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