California boosts bond deal to $2.5 billion amid strong investor demand

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Robust investor demand allowed California to increase the size of a bond offering to $2.5 billion from $2 billion in a deal that wrapped up Thursday.

The tax-free general-obligation bonds, which will fund voter-approved infrastructure projects, attracted orders totaling $1.38 billion from individual investors in a retail order period Tuesday and Wednesday.

With just $620 million of the original $2-billion deal left, the state took in $3.3 billion in orders from institutional investors such as mutual funds Thursday. To fill more of those orders, Treasurer Bill Lockyer raised the size of the offering to $2.5 billion.

Strong demand allowed the state to slightly trim yields on some of the bonds compared with preliminary estimates. The bonds were sold in maturities ranging from one year to 30 years. [UPDATE: Final yields for each maturity have been added below.]

Despite its weak credit rating and the ongoing struggle to plug a $20-billion budget gap, California benefited from investors’ still-voracious hunger for fixed-income securities.

The U.S. Treasury this week also saw massive demand for its latest offering of three-, 10- and 30-year notes and bonds to finance the record federal budget deficit. The Treasury on Thursday sold $13 billion of 30-year bonds at an annualized yield of 4.68%.

California, by contrast, paid a yield of 5.65% on a 30-year bond in this week’s deal. That yield is exempt from federal and state income tax, so it’s equivalent to a much higher taxable yield for high-income investors.

Lockyer still has a backlog of about $45 billion in voter-approved infrastructure bonds to issue over the next few years or so.

Here are final tax-free yields on the bonds the state sold Thursday:

Maturity.....Yield

2012..............1.17%

2014..............2.07%

2015..............2.57%

2016..............3.16%

2017..............3.58%

2018..............3.93%

2019..............4.18%

2021..............4.54%

2022..............4.65%

2023..............4.77%

2024..............4.87%

2025..............4.97%

2026..............5.05%

2027..............5.15%

2028..............5.25%

2029..............5.34%

2030..............5.40%

2033..............5.42%

2036..............5.62%

2040..............5.65% -- Tom Petruno