Investors swamped California with orders in its first debt sale since resolving its budget crisis, allowing the state to sell $8.8 billion in short-term notes, the state treasurer said on Wednesday, in a good sign for his plan to sell long-term bonds next month.
Retail investors bought 75 percent of the revenue anticipation notes and set a record for municipal debt.
California resorted to issuing IOUs in the summer due to a fiscal crisis. But in its return to the market, the state looked like a safe investment compared with stocks which have run up quickly, California Treasurer Bill Lockyer said after speaking with investment managers.
"There were many who thought that some investors were worried the stock market was getting frothy and were looking for a safer place to put money," Lockyer said in a telephone interview with Reuters.
California plans to tap long-term debt markets in early October by selling general obligation debt, and its sale of short-term notes suggests retail investors will return.
"I would expect that there are enough buyers participating in the short-term sale who would want to participate in the long-term sale," said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott in Philadelphia.
"Strong protections make the likelihood of default extremely small and of course we have a market in search of yield," LeBas said.
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