California (STOCA1) raised preliminary yields on some maturities as it began marketing to institutional buyers in the third day of its $2 billion general-obligation offer, according to a person with direct knowledge of the sale.
The state marketed a 10-year segment at a 2.73 percent yield today, up from 2.69 percent yesterday, according to the person, who declined to be named before the sale’s planned completion today. For debt due in February 2038, the longest maturity, the yield rose to 4.1 percent from 4.08 percent.
Individual investors have already put in orders for almost half the tax-exempt offering. The most populous and most indebted state took $930.7 million in orders from individuals in two days, or 47 percent, Tom Dresslar, a spokesman for Treasurer Bill Lockyer, said yesterday.
“We were hoping for strong demand, and we weren’t disappointed,” Lockyer said. The sale is slated to wrap up today.
The state is still set to pay lower yields and a smaller yield spread over benchmark debt than when it last sold debt in October. In October, a 10-year portion priced to yield 3.7 percent, according to data compiled by Bloomberg.
Governor Jerry Brown curbed borrowing last year to help shrink deficits. The state offered $3.3 billion in debt in 2011, the lowest amount in four years. That crimped the supply of California state and local bonds, which returned more than the full $3.7 trillion muni market in each of the past three years.
Demand may increase for California tax-exempt bonds if voters approve Brown’s proposed November ballot measure seeking to raise tax rates on personal incomes higher than $250,000 to help close a $9.2 billion deficit.
The bonds maturing in 10 years are being offered at 81 basis points more than the 1.92 percent yield on top-rated debt of the same maturity, according to BVAL data. The difference is down from 128 basis points on similar maturities in October. A basis point is 0.01 percentage point.
Proceeds from the sale will refund debt. J.P. Morgan (JPM) Securities LLC, Barclays Capital and Wells Fargo (WFC) Securities are managing the sale.
The outlook on California’s credit was revised to positive from stable by Standard & Poor’s on Feb. 14. S&P has an A- rating on $73.4 billion of general-obligation debt, its fourth- lowest investment grade and the worst of any state. Moody’s Investors Service rates the state A1, the second-lowest after Illinois.
California state and local debt returned 14.8 percent last year, according to a Bank of America Merrill Lynch index tracking prices and interest income. That’s the most since 2009 and more than the 11.2 percent return for the broader market, 9.8 percent for Treasuries and 7.5 percent for top-grade corporate debt.
In January, California issues returned 3.3 percent, more than the muni market, Treasuries and corporate securities, the indexes show.
A 10-year California general-obligation bond sold in October traded on Feb. 6 with an average yield of 2.67 percent, or 90 basis points more than the index of top-rated debt.
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