Money & Company
Tracking the market and economic trends that shape your finances.
September 19, 2011 | 9:52 pm

A steep drop in interest rates on tax-free municipal bonds this year has curbed individual investors’ appetite for a new California debt offering.

The state’s brokerage network took in orders Friday and Monday for $640 million of a $2.5-billion general obligation bond deal offered by Treasurer Bill Lockyer, his office said late Monday.

By contrast, individual investors put in orders for nearly $1 billion of bonds at the last such offering, in November.

The difference between then and now: Market yields on California muni bonds have fallen sharply, pulled down by the slide in U.S. Treasury bond interest rates this year and by the relative calm in the muni market after a major sell-off last fall and winter fueled a spike in yields.

When it issued bonds in November the state paid an annualized tax-free yield of 4.23% on 10-year securities in the offering. This time around the state set the preliminary yield on its 10-year bonds at 3.17%, more than a full percentage point less.

The state is offering 4.80% on the 30-year bonds in this week’s deal, down from 5.50% on 30-year bonds it sold in November.

The decline in rates is good news for taxpayers who will foot the bill for the bonds, which will refinance previously issued debt. But individual investors “are very wary of these yields being so low,” said Joe Lee, a muni trader at bond firm De La Rosa & Co. in L.A.

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