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SAN FRANCISCO (Reuters) - Citigroup <C.N> and J.P.Morgan Securities <JPM.N> placed winning bids on Tuesday for a $764 million mix of tax-exempt new money and refunding general obligation debt issued by California in a competitive sale.
Citigroup won the bid on $249.2 million of California's new-money general purpose GO bonds, according to market sources. They said $50 million of the GO debt maturing in 2022 - rated 'A' by Standard & Poor's and Fitch Ratings and 'A1' by Moody's Investors Service - carries a yield of 3.18 percent.
Top-rated 'AAA' municipal bonds maturing in 2022 offered a yield of 2.78 percent on Monday, according to Thomson Reuters' Municipal Market Data.
The 40 basis point spread underscores the strong demand for California GO bonds, which are popular with muni bond investors, and expectations the state may be upgraded as it gets its fiscal affairs in order. In the secondary market, the nine-year credit yield spread between California GO bonds and triple-A bonds has been at 44 basis points since August 8, according to MMD.
After a decade of deficits, California has a surplus thanks voter-approved tax increases last year, a strengthening economy and agreement between Governor Jerry Brown and the state legislature to keep most spending restrained.
"It (the sale) proved itself," said Kelly Wine, executive vice president of municipal bond broker-dealer RH Investment Corp in Los Angeles. "It proved the state right in going competitive.
"There's quite a bit of interest in Cal GOs and they'll continue to trade well in the secondary," Wine added.
Yields on the remaining $199.2 million of the bonds bought by Citigroup ranged from 1.19 percent on their 2017 maturity to 3.41 percent on their 2023 maturity, compared with yields of 1.09 percent and 2.96 percent on AAA-rated muni bonds of similar respective maturities.
The credit spread on the 10-year maturity stood at 53 basis points on Monday.
J.P.Morgan picked up $155 million of California's various purpose GO bonds and $359.9 million of its GO refunding bonds.
Yields on the new-money bonds ranged from 3.64 percent on the 2024 maturity to 4.42 percent on the 2029 maturity, compared with 3.14 percent and 3.89 percent for AAA-rated muni bonds.
Yields on the refunding bonds ranged from 3.64 percent on their 2024 maturity to 4.80 percent on their 2033 maturity. Top-rated muni bonds maturing in 2033 offered a 4.21 percent as of Monday.
(Reporting by Jim Christie; Editing by Steve Orlofsky)