California Sells 44% of $2.2 Billion Bonds to Individuals

Oct. 22 (Bloomberg) -- Individual investors placed orders for 44 percent of $2.2 billion in general-obligation bonds that California is selling as an economic rebound has squeezed the state’s yield premium to the lowest level in five years.

The most-indebted state is offering $2.06 billion in tax-exempt debt, rated A, sixth highest, by Standard & Poor’s, for projects such as schools and earthquake protection, and about $186 million in federally taxable bonds. The sale ends today with orders from institutional buyers, such as mutual funds.

California offered investors preliminary yields of 1.48 percent for maturities of five years, 3.15 percent for 10 years, and 4.92 percent for 30-year debt, Bill Ainsworth, a spokesman for state Treasurer Bill Lockyer, said yesterday by e-mail.

California’s largest general-obligation sale since April came as the extra yield investors demand to own 10-year bonds narrowed to 0.3 percentage point yesterday compared with top-rated debt with similar maturities, the lowest spread since 2008. The value had peaked at 1.7 percentage points in July 2009, when an impasse over how to close a budget deficit led the state to issue IOUs to cover spending, data compiled by Bloomberg show.

Governor Jerry Brown, a Democrat who took office in January 2011, has championed higher sales and income taxes and took measures to reduce the state’s short- and long-term debt. These steps have included reducing dental services in the state’s health-insurance program and cutting back on deferred payments to schools and community colleges.

To contact the reporter on this story: James Nash in Los Angeles at jnash24@bloomberg.net

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net