California sells $2.37 billion in bonds despite lower interest
California wrapped up its first long-term debt sale of 2011, paying interest rates well below what it paid on bonds last November — a savings for taxpayers.
The drop in yields curbed demand for the bonds from individuals, but buying by big investors such as mutual funds allowed state Treasurer Bill Lockyer to issue nearly the full amount planned.
The state on Tuesday sold $2.37 billion of tax-free general obligation bonds to refinance older bonds and pay off other debt. Individuals put in orders for $655 million of the bonds; institutions bought $1.74 billion.
When it issued bonds in November, the state paid a tax-free yield of 4.23% on 10-year securities in that offering. This time Lockyer set the yield on 10-year bonds at 3.17%, more than a full point less. Yields were lower across the board on bonds of other maturities as well.
Although California’s credit rating remains the lowest of any state, the budget passed by the Legislature in June has given investors more comfort about the state’s fiscal outlook, Lockyer spokesman Tom Dresslar said. “We believe the budget has helped constrain the price” of borrowing, he said.
It also has helped California that muni bond interest rates have in general tumbled this year, along with yields on U.S. Treasury bonds, as the economy has weakened and many investors have favored bonds over stocks for safety.
But falling yields have pushed some individual investors to the sidelines because they believe the returns aren’t high enough to justify the risk, analysts say. Small investors are “deeply unhappy” with muni yields now, said Matt Fabian, analyst at research firm Municipal Market Advisors.
Orders from individual investors in Tuesday’s bond sale were well below the nearly $1 billion they put in for the November sale, although this time bonds of certain maturities were available only to institutions. The state said it raised yields on bonds maturing between 2013-2016 and 2022-2028 by as much as 0.05 of a percentage point from its initial estimates to get the deal done.
The state plans another general obligation bond sale in mid-October.
