Second Round of Bonds Sales Announced
State Treasurer Bill Lockyer announced that California will sell an additional $2 billion in short-term bonds in November to complete the state’s cash flow borrowing for the current fiscal year. The week of October 13, 2008, the state sold $5 billion in bonds with yields ranging from 3.75% to 4.25%, depending upon the maturity date of the bond, according to an October 21, 2008, article in the Sacramento Bee.
What caught many financial experts by surprise was the strong demand for California’s bonds from individual investors, who accounted for just under 80% of the sale. Large institutional investors purchased the remaining $1 billion after sales to individual investors were closed. The strong demand was likely driven by the collapse of the equity markets, which caused investors to seek a safe place to invest their proceeds.
The second issuance of short-term debt will fulfill the state’s cash flow borrowing needs for 2008-09. Just last month, there was significant concern that the failure of many major financial institutions would make it difficult for California to borrow from the private credit markets. For this second round of sales, the state plans to secure credit enhancements for the bonds, making them a less risky investment and thus lowering the interest rate that the state must pay for the borrowed funds.
—John Gray and Robert Miyashiro