California sees good demand for $2.5 billion of bonds

Aug 29 (Reuters) - Demand for the state of California's $2.5 billion of general obligation bonds on Tuesday led underwriters to reduce yields in several maturities of the issue.

Underwriters repriced the bonds, reducing some yields by 1 to 5 basis points. The top yield fell 3 basis points to 3.27 percent for bonds due in 2047 with a 4 percent coupon, according to Thomson Reuters data.

California's sale marks the largest deal expected this week. The deal consists of $800 million of new general obligation bonds and $1.7 billion of refunding bonds and was sold through Goldman Sachs & Co and Stifel.

Over the current year, California's credit spread over Municipal Market Data's benchmark triple-A yield scale for 10-year bonds has narrowed to 16 basis points as of last Friday from a high of 35 basis points in March. On Tuesday, California's spread increased to 19 basis points.

California Treasurer's Office had no immediate comment on Tuesday's bond sale.

California was the biggest issuer of muni bonds in the first half of 2017 with $4.64 billion of debt in five deals. The state is rated Aa3 by Moody's Investors Service and AA-minus by S&P and Fitch Ratings.

S&P Global Ratings assigned Tuesday's deal a AA-minus rating, citing the state's diverse and growing economy, commitment to balance its budget and pay down debts, and good reserves.

California is a state known for its boom and bust economic cycles. After the recession in 2008, the state suffered consecutive years of budget deficits and increased debt burdens. Since then, California's fiscal leaders have improved the state's finances in part by socking money into its rainy day and reserve funds.

Last year the state surpassed France to become the world's sixth-largest economy, boosted by technology, manufacturing and agricultural sectors. (Reporting by Robin Respaut in Chicago; additional reporting by Karen Pierog; Editing by Phil Berlowitz)