Investors Snap Up California's $1.6 Billion of Bonds

Monday, 24 Sep 2012 04:02 PM

 

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California plans to finish its sale of about $1.55 billion of tax-free general-obligation bonds Monday, one day early, after receiving orders for almost two- thirds of the securities from individual investors.

The state lowered the yield on a 10-year segment to a preliminary 2.49 percent, compared with 2.51 percent on Sept. 21, and will conclude the sale Monday, Tom Dresslar, spokesman for California Treasurer Bill Lockyer, said in a statement. Individuals already have placed orders for $1 billion of the debt, Dresslar said. Institutional investors such as mutual funds can also submit orders Monday, he said.

“They got a really good amount of retail interest on Friday so they pre-sold a lot of the deal,” said Daniel Solender, who helps manage about $17 billion of municipal bonds at Lord Abbett & Co. in Jersey City, New Jersey. “There’s just a real demand for anything with a little incremental yield right now, and particularly in a liquid credit like California.”

The bonds offer 0.72 percentage point more yield than top- rated munis maturing in 10 years, according to data compiled by Bloomberg. That’s down from 0.84 percentage point on bonds with similar maturities sold in April. Thirty-year bonds were offered at 3.75 percent, or 0.85 percentage point above AAAs.

More Ahead

California is selling $1 billion of general obligations for public-works and $550 million to refund debt. With another $500 million slated for market in October, Lockyer plans to offer about $5.3 billion this year, about a quarter of the state’s sales in 2009.

“California G.O.s continue to perform well because the market recognizes the substantial strides we have made toward greater fiscal stability,” Dresslar said in a statement on Sept. 21.

California’s economy is bigger than India’s, ranking ninth in the world as measured by gross domestic product, according to the state Finance Department. Its bonds have returned 7.1 percent in 2012, beating all but three states and the 6.1 percent gain for the broader $3.7 trillion muni market, according to Standard & Poor’s data.

S&P rates California A-, six levels below AAA and the worst mark it gives any U.S. state.

Benchmark tax-free debt due in 10 years yields 1.77 percent today, according to a Bloomberg Valuation index. Thirty-year debt yields 2.9 percent.

“It’s been several months since the last time they issued, which definitely benefits them,” Solender said.

© Copyright 2014 Bloomberg News. All rights reserved.

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