What credit crunch? Californians are falling over themselves to extend credit to the Golden State, which is floating an offering of short-term IOUs this week.
But robust demand for the tax-free debt will mean lower yields than investors might have hoped.
Treasurer Bill Lockyer on Wednesday boosted the size of the state's offering of so-called revenue anticipation notes to $4.5 billion from $4 billion, amid a huge wave of orders from individual investors.
Those orders totaled $3.9 billion by Wednesday afternoon, or about 98% of the original $4 billion in securities to be sold.
"We're obviously ecstatic about the response," said Tom Dresslar, a spokesman for Lockyer.
"Given the continued free fall of the stock market, folks are looking for a safe place to put their money and earn a good rate of return over a short period of time."
But that return also is falling as buyers swarm for the debt.
The state had estimated on Tuesday that the notes maturing on May 20 would pay an annualized tax-free yield of between 3.75% and 4%, and that a second IOU maturing on June 22 would pay between 4.25% and 4.5%.
On Wednesday, Lockyer set the preliminary rates at the low end of those ranges: 3.75% for the seven-month notes and 4.25% for the eight-month notes.
And the final yields may be lower: They'll be determined today, when the state takes orders from institutions such as mutual funds and insurance companies. If demand from those big investors is strong, the state could lower the yields further -- which would be good for the budget and for taxpayers, of course.
Individuals have the right to cancel today if they don't like the final numbers.
The state needs the cash from these IOUs to patch its seasonal budget shortfall.