California (STOCA1) sold $2 billion of general-obligation bonds after raising yields as the offering’s size forced up interest rates across the $3.7 trillion municipal market.
The yield on a bond maturing in 10 years was boosted to 2.78 percent yesterday, when institutional investors placed orders, from 2.69 percent a day earlier, when the securities were offered to individual investors, according to data compiled by Bloomberg.
The tax-exempt debt was still about 0.9 percentage point lower than a similar California bond in October. For debt due in 2038, the longest maturity, the yield rose to 4.13 percent yesterday from 4.08 percent.
Individual buyers accounted for almost half the orders, or $930.7 million, according to Tom Dresslar, a spokesman for Treasurer Bill Lockyer. The refunding will save the most populous and most indebted state $250 million in debt-service payments, he said.
“With the state still fighting to keep its budget in the black, every bit of savings helps,” Lockyer said in a statement yesterday.
The sale represented about a quarter of municipal issuance this week. The California sale pushed up yields on top-rated municipal debt due in 10 years by five basis points to 1.9 percent, said Jason Hannon, a trader at New York-based Arbor Research & Trading Inc. Rates on 30-year bonds rose four basis points to 3.27 percent, he said. A basis point is 0.01 percentage point.
The state is still paying lower yields and a smaller yield spread over benchmark debt than in October. Then, 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 least in four years. That crimped the supply of California state and local bonds, which returned more than the full 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 yield about 87 basis points more than top-rated debt of the same maturity, according to BVAL data. The difference is down from 128 basis points on similar maturities in October.
J.P. Morgan (JPM) Securities LLC, Barclays Capital and Wells Fargo (WFC) Securities managed 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.
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