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California bond sale draws relatively light demand on first day

October 17, 2011 |  5:25 pm

Individual investors on Monday placed orders for about 14% of a $1.8-billion sale of tax-free bonds by California, a relatively low turnout for a state debt sale.

Treasurer Bill Lockyer said the state’s brokerage network took in $250 million in orders on the first day of a two-day retail sale period, when the state gives preference to individuals over institutions.

By contrast, Lockyer had $459 million in orders on the first day of last month’s bond sale. That was about 18% of the total offering of $2.5 billion in securities.

The state took in a lower level of orders this time around despite offering significantly higher interest rates on the bonds than at last month’s sale, which was the first offering of 2011.

CaliforniaflagAs bond yields in general have rebounded over the last month, the state was offering a preliminary yield of 2.10% on the five-year bonds in its latest sale, up from 1.61% in the September deal.

The 10-year bonds in the latest sale were offered at a preliminary yield of 3.51%, up from 3.17% at the last sale.

The bonds, known as general obligation issues, are being sold in maturities of three to 30 years.  Interest on the securities is exempt from state and federal income tax for California residents, so the returns can be worth substantially more than similar fully taxable yields, depending on an investor’s tax bracket.

 “We’ve got another day to go. Let’s see where we’re at when it’s all over,” said Tom Dresslar, a spokesman for Lockyer, when asked about Monday’s order level.

California has the lowest credit rating of any state, reflecting the weak economy and the state’s history of budget struggles, but that has been the case for years. The bonds are rated A1 by Moody’s Investors Service and A- by Standard & Poor’s. Those ratings are considered “upper medium grade.”

Proceeds from the bonds will finance a backlog of voter-approved infrastructure projects.

Individual investors can submit orders for the bonds through Tuesday. Orders must be placed with brokers; the state doesn’t sell its bonds directly to investors.

Institutional investors will bid for the remaining bonds on Wednesday, which is when the final yields will be set. Individual investors who don’t like the final yields can cancel their orders.

The bonds are sold in minimum blocks of $5,000. For more information on the sale, go to Lockyer’s website, buycaliforniabonds.

RELATED:

California plans $2-billion bond sale amid rising yields

California sells out $5.4-billion short-term note sale

California sells $2.4 billion in bonds as yields fall

Investing: Is the bond market at a crossroads?

-- Tom Petruno

Follow me on Twitter: Twitter.com/tpetruno

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