California Completes $14.5 Billion in Debt Sales With Tax-Exempt Issuance
Sept. 8 (Bloomberg) -- George Strickland, a portfolio manager at Thornburg Investment Management, talks about California's bonds. Strickland also discusses Puerto Rico's debt, the outlook for municipal markets and his investment strategy. Strickland speaks with Pimm Fox on Bloomberg Television's "Taking Stock." (Source: Bloomberg)
California wrapped up the sale of $14.5 billion in short-term notes and longer-maturity securities to finance public works projects, said Tom Dresslar, a spokesman for Treasurer Bill Lockyer.
Today’s sale of $1.25 billion in tax-exempt bonds capped a week of offerings that included $10 billion in revenue anticipation notes and $3.275 billion in taxable general- obligation bonds, Dresslar said in an e-mail.
California sold after yields on 10-year AAA tax-exempts fell 2 basis points, or 0.02 percentage point, to 2.98 percent on Nov. 19, the first decrease in more than a week, according to a Bloomberg Fair Market Value index. The stabilization followed a 13 basis point jump on Nov. 18, the biggest one-day surge since April 1994.
“Now we can catch our breath and give the market a breather,” Lockyer said in the e-mail.
The extra yield investors demand above top-rated debt for five-year general obligations from California issuers reached 90 basis points on Nov. 19, the most since July 23, Bloomberg Fair Market Value data show.
California, the biggest issuer of debt in the municipal market, is rated A1 by Moody’s Investors Service, its fifth- highest grade, and A- by Standard & Poor’s, its fourth-lowest level for investment-quality securities.
The most-populous U.S. state sold $2.5 billion of tax- exempts on March 11, with 30-year bonds priced to yield 5.65 percent, or 121 basis points above AAA debt, according to a Bloomberg Fair Market Value index. The so-called spread narrowed to about 89 basis points on Nov. 19.
‘Not Struggling’
“We’re not struggling,” Dresslar said in a statement on Nov. 19. “We’re doing a job that’s vital to California’s fiscal and economic health, and doing it at the best possible price for taxpayers.”
The state completed its sale of $3.275 billion of taxable debt on Nov. 19, a day after increasing it almost 20 percent amid demand for yields that exceed those on some lower-rated corporate bonds.
The sale included $3.025 billion of federally subsidized Build America Bonds and $250 million of traditional taxable general-obligation securities. Coupons were set at 3.25 percentage points more than comparable-maturity Treasuries on $2.11 billion of the Build America debt due in 30 years, according to Lockyer’s office. That’s a yield of about 7.52 percent.
Earlier in the week, California was forced to raise yields on $10 billion of short-term notes it sold and had to offer rates on taxable debt that exceed those on some lower-rated corporate bonds amid the surge in municipal issuance.
“It’s interesting to me that an entity with a $25 billion deficit over the next 18 months doesn’t pay much of a rate penalty,” Jon Schotz, co-managing partner at Saybrook Capital in Santa Monica, California, who oversees more than $300 million in municipal bonds, said in a telephone interview.
To contact the reporters on this story: Pete Young in San Francisco at pyoung13@bloomberg.net; Brendan A. McGrail in New York at bmcgrail@bloomberg.net.
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