California boosts muni bond sale as rising yields draw investors

California on Monday boosted the size of a tax-free municipal bond sale amid strong demand, as investors were lured by the recent jump in interest rates on muni securities.

Even after increasing the sale to $1.25 billion from $1 billion, the state had more orders than it could fill.

Municipal-bond yields surged this month as longer-term interest rates in general moved up and as states and municipalities nationwide swamped the market with new bonds.

California played a big role in overloading the market last week as it launched debt sales totaling nearly $14 billion, including $10 billion in short-term notes.

After demand for the state's notes was weaker than expected, Treasurer Bill Lockyer on Wednesday reconfigured the rest of his borrowing plans. The tax-free bond sale completed Monday was originally to total $1.75 billion but was cut to $1 billion.

By Thursday yields in the muni bond market reached levels that began to draw investors in from the sidelines. Yields fell Friday and again Monday.

The state got $987 million in orders for the tax-free bonds from individual investors and $698 million from institutions. Because demand exceeded supply, Lockyer's office said that an "as-yet undetermined amount" of orders from individuals wouldn't be filled.

The tax-free bonds, which will finance infrastructure projects, were sold in maturities ranging from 2011 to 2040.

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