California sold $2.4 billion in general-obligation bonds at yields about a third less than two years ago as its fiscal progress eased the premium demanded by investors.
The state’s first general obligations offered this year were priced to yield 3.17 percent on 10 year maturities, as much as 109 basis points above top-rated tax-exempt debt. That compares with a 160 basis-point premium on similar bonds in March 2009. A basis point is 0.01 percentage point.
“There is a perception that the state is getting its budgeting and deficit situation more in order,” said Kelly Wine, executive vice president of RH Investment Corp., a broker- dealer in Encino, California, that helped sell the bonds.
The budget Governor Jerry Brown and Democrats passed in June, which helped reduce long-term structural imbalance, allowed Treasurer Bill Lockyer to lower yields because perceived risk has declined, said his spokesman, Tom Dresslar. Individual investors bought about 25 percent of the issue, down from 80 percent in November at the most recent previous sale. Slightly more than half of the total was offered to retail buyers, Dresslar said.
“The treasurer will maintain his focus on maximizing retail purchase of California bonds,” Dresslar said. “But if the days of investors getting a sweet fiscal mismanagement premium are over, we may not see again some of the higher retail percentages of recent years.”
The state closed orders to individuals as institutions bought the bulk of the sale.
‘Lackluster’ Individual Sales
“Retail interest is generally a bit lackluster at these levels,” Wine said. “If the state garnered 650 million in retail orders, perhaps that isn’t such a bad number.”
California sold bonds with yields ranging from as little as 0.72 percent for securities maturing in 2013 and as much as 4.80 for debt maturing in 2041, 114 basis points above a 30-year index of top-rated tax-exempt bonds.
The 10-year index of top-rated municipals fell to 2.08 percent today, up from 2.05 percent on Sept. 12, the lowest level since January 2009, when Bloomberg began collecting data for the securities. Yields on top-rated 30-year tax-exempts fell to 3.63 percent after slipping to 3.56 percent on Sept. 12, also the lowest since Bloomberg records began.
The state’s debt, including price changes and interest income, returned 9.3 percent through Sept. 19, outperforming the overall tax-exempt market by 122 basis points, according to S&P Municipal Bond Indexes.
© Copyright 2017 Bloomberg News. All rights reserved.