California boosts bond sale again on strong demand

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Investors on Wednesday gave a warm welcome to California’s lastest bond offering, spurring the state to boost the size of the deal for the second time this week.

Treasurer Bill Lockyer will sell as much as $3.4 billion of taxable bonds in the deal to be priced on Thursday, up from the $2.5 billion planned as of Tuesday, according to market sources. The offering was originally supposed to total $2 billion.

Lockyer’s office declined to comment ahead of the formal pricing.

The taxable bonds, which are mainly being sold to institutional investors such as pension funds, will mostly finance voter-approved infrastructure projects.

A chunk of this week’s debt will be so-called Build America Bonds, the interest on which is partially subsidized by the U.S. Treasury.

Traders said the state may be paying an annualized yield close to 8% on 30-year bonds in the offering, a return that would look appealing to many big investors compared with rates on Treasuries or corporate bonds.

Indeed, demand for California’s offering Wednesday contrasted with a steep sell-off in Treasuries.

-- Tom Petruno