Tobacco Bond Sale Sees Strong Demand

California said its sale Wednesday of $3.2 billion in so-called tobacco bonds was heavily oversubscribed as investors stepped up to buy.

The sale garnered $10.2 billion in orders, according to Treasurer Phil Angelides’ office.

The tax-free bonds are backed by payments owed the state by the tobacco industry under a 1998 liability settlement.

The deal was a refinancing of the state’s initial tobacco-bond sale in 2003. A drop in interest rates on municipal bonds over the last two years made it worth it for California to refinance the IOUs. The sale will add $525 million to the state’s general fund, Angelides’ office said.

The longest-term bond in the sale, an uninsured issue maturing in 2045, paid an annualized yield of 4.7%. Muni bond yields are exempt from federal and state income tax.