Bloomberg News

California Raises 10-Year Yields to 3.70% in Tax-Exempt Sale

October 19, 2011

(Adds Lockyer spokesman’s comment in third paragraph.)

Oct. 19 (Bloomberg) -- California sold $1.8 billion in general-obligation bonds, including 10-year securities yielding 3.70 percent, up from 3.51 percent during marketing to individual investors, according to data compiled by Bloomberg.

The yield on $118 million in 10-year tax-exempt bonds is 128 basis points above an index of top-rated debt of the same maturity, a Bloomberg Valuation Index shows. That’s up from a gap of 109 basis points when California sold $2.4 billion of general-obligation debt last month. A basis point is 0.01 percentage point. The spread aligns with a forecast last week from Gary Pollack at Deutsche Bank Private Wealth Management.

“Given the market we confronted, we’re satisfied with the results,” Tom Dresslar, a spokesman for Treasurer Bill Lockyer, said in a statement. “We’re confident we got the best deal possible for taxpayers.”

The most-populous U.S. state is rated A1 by Moody’s Investors Service, its fifth-highest ranking. Yields on top- rated 10-year bonds fell for a fourth day to 2.42 percent, after reaching a two-month high of 2.58 percent Oct. 14.

California’s securities are in short supply after Governor Jerry Brown, seeking to curb debt-service costs, imposed a nine- month sales moratorium that cut issuance by more than half from last year. Buyers may also be encouraged by spending cuts that would be triggered if revenue trails projections by at least $1 billion this fiscal year.

Long Rates Rise

About $450 million, the deal’s largest portion, matures in 2041 at a rate of 5.03 percent. That’s higher than the 4.87 percent yield offered during individual pricing and 136 basis points more than an index of top-rated 30-year state and local debt, according to a BVAL index.

In other sales today, the Hudson Yards Infrastructure Corp. in New York sold $1 billion of debt to extend the No. 7 subway line to Manhattan’s west side. The deal included $650 million of bonds maturing in 36 years with a yield of 5.1 percent. The bonds are rated A by Standard & Poor’s, its sixth-highest grade.

--With assistance from Michael Marois in Sacramento, California. Editors: Mark Schoifet, Mark Tannenbaum, Ted Bunker.

To contact the reporter on this story: Michelle Kaske in New York at mkaske@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net


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