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California forced to pay 4% yield in bond sale

November 11, 2009|Tom Petruno

California stumbled badly in its latest venture into the municipal bond market -- a sign that investors are overloaded with the state's debt.

Borrowing $1.9 billion on Tuesday via bonds that mature in June 2013, the state was forced to pay a 4% annualized tax-free yield to lure investors.

As recently as Friday the brokerages underwriting the deal, led by Goldman Sachs, had estimated that the bonds could be sold at a yield of 3%.

The boost in the yield demanded by investors reflects the "saturation" of the market with California debt over the last seven weeks, said George Strickland, a bond fund manager at Thornburg Investment Management in Santa Fe, N.M.

Since Sept. 23 the state has sold more than $21 billion in short- and long-term debt for budget-related reasons and to fund infrastructure projects.

Individual investors put in orders for about one-third of the bonds sold Tuesday. But that wasn't enough to give the state much leverage with the institutional investors whose demands determined the final yield on the debt.

The bonds were issued by the California Statewide Communities Development Authority, but it's the state itself that's on the hook. The proceeds will repay local governments for the $2 billion in property taxes that the state is borrowing from them under terms of the budget deal the Legislature and Gov. Arnold Schwarzenegger reached in July.

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tom.petruno@latimes.com

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