Money & Company
Tracking the market and economic trends that shape your finances.
September 14, 2011 | 2:36 pm

Investors’ scramble to earn a reasonable return on their cash helped California sell out an offering of $5.4 billion in short-term notes earlier than expected — and at the low end of expected yields.

The state said it completed the debt sale on Wednesday, one day ahead of schedule.

The notes were sold in two maturities: The $4.9 billion of securities maturing June 26, 2012, will pay an annualized yield of 0.40%; the $500 million in notes maturing May 24, 2012, will pay 0.38%.

The interest is exempt from state and federal income tax for California residents, so it’s equivalent to a higher taxable return, depending on an investor’s tax bracket.

When Treasurer Bill Lockyer launched the note sale on Tuesday he estimated that the final yield on the June notes would be 0.40% to 0.55%. Investor demand was strong enough to enable Lockyer to pay the lower rate.

With short-term interest rates in general scraping rock bottom, a 0.40% tax-free yield beats many of the alternatives for investors looking for a haven for their cash. One-year U.S. Treasury bills pay less than 0.10%.

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