Investors ignored California's budget problems and snapped up $441 million of general obligation bonds yesterday, while secondary prices climbed 1/8, despite a slew of bid-wanteds.

There had been market rumblings over the last week that California's projected $3 billion deficit might affect its coveted triple-A ratings. But both Moody's Investors Service and Standard & Poor's Corp. afirmed the gilt-edged ratings Tuesday, and by session's end the issue was reported all sold except for $14.5 million.

Two bidding groups vied for the issue and a group led by Bank of America won the bonds with a Canadian interest cost of 6.0571%.

The second bidding group was led by Lehman Brothers, and included Goldman, Sachs & Co. and Manufacturer's Hanover Securities. Their cover bid was a CIC of 6.1268%.

A member of the account said that bonds were done presale in 1992-1999, 2001, and 2005-2011. A Bank of America officer said there was individual interest through 10 years as individuals moved ouit along the curve looking for yield. The deal saw demand from institutions, including bond funds, property and casualty companies, and some money managers who bought longer bonds.

The issue was priced to yield from 4.80% in 1994 to 6.40% in 2011. Bonds in 1992, 1993, and 2006 and 2007 were not formally reoffered to investors.

Bank of America also won $37 million of California housing and homeless bonds, subject to the federal alternative minimum tax, with a CIC of 5.5902%.

The issue was priced to yield from 4.20% in 1992 to 5.80% in 2001.

The bonds were priced identically to the tax-exempt portion, where AMT bonds usually carry a higher yield than non-AMTs.

"We did some research and found that there are very few individuals who are subject to the AMT in California," the officer said. "We put some more spread in the deal and it's doing very well."

California last tapped the market in September with a $524 million offering, the largest competitive deal ever. Bank of America won the issue with a TIC of 6.066%. Bonds in 2011 were priced to yield 6.35%.

In other action, a First Boston group won $272 million Georgia state general obligation non-callable bonds with a net interest cost of 6.0690%.

An unsold balance of $58 million was reported late in the session and a First Boston officer said that the deal saw demand from the range of investors top-to-bottom.

"The non-callable made it attractive and there was some sex appeal from the coupons," the officer said. "Because of the non-callable feature we were able to use premium bonds out longer and use a 3% coupon in 2011, which made for a lower net interest cost."

The issue was priced to yield from 4.25% in 1992 to 6.40% in 2011.

Coupons were scaled from 7% in 1992 to 3% in 2011. The bonds are rated AAA by Moody's and AA-plus by Standard & Poor's.

Georgia last sold bonds in April with a $289 million offering. Chase Securities won the issue with a TIC of 5.53%. The bonds were priced to yield 6.50% in 2004. The term bonds were not formally reoffered to investors.

The issue was rated AAA by Moody's and AA0plus by Standard & Poor's.

In follow-through business, unsold balances continued to decline.

Goldman Sachs, senior manager for $158 million of Missouri third state building general obligation refunding bonds, reported an unsold balance of $12 million late in the session.

The firm was also senior manager for $100 million of Los Angeles Department of Water and Power water works revenue bonds, for which it reported an unsold balance of $1.29 million.

In other action in the primary, Goldman, also senior manager for $180 million of East Bay Municipal Utility District water and wastewater system subordinated revenue bonds, released 2012 and 2021 term bonds from syndicate restrictions.

In secondary trading, the 6 3/8s of 2021 were quoted at 97 1/2-3/4 to yield 6.54%, where the bonds were originally priced to yield 6.56%.

In other secondary activity, traders reported two sizable bid-wanted lists, one of which appeared to be a bank portfolio. Traders reported good business on the list, with some sizable blocks changing hands, and the secondary market tone remained firm, despite the amount of bid-wanted product.

Some market participants have reported a slow-down in retail interest over the last three weeks, but acknowledge the market's ability to move through new supply.

"It's amazing how quickly we've reached a euphoric, frothy state of mind after last week's lethargy," one trader said. "Usually a move like that indicates an overbought situation, but there was good follow through today."

Reflecting the market's jump, the December MOB spread was calculated at negative 165 yesterday, compared to negative 158 Tuesday, and negative 135 Monday.

Debt futures prices fell slightly yesterday in sympathy with the government sector. The December contract settled down 3/32 to 94.25.

In dollar bond trading, most names were quoted up 1/8 to 1/4 point. North Carolina Eastern 6 1/2s of 2017 were quoted at 96 1/2-3/4 to yield 6.76%. Denver Airport 7 3/4s, due 2021, were quoted at 94-94 1/4 to yield approximately 8.27%. New York City Water Authority 7s of 2015 were quoted at 99-1/4 to yield 7.06%, while Washington Public Power Supply System 6 7/8s of 2017 were quoted at 99 1/2-5/8 to yield 6.90%. Massachusetts Water Resources Authority 6 1/2s of 2019 were quoted at 94 5/8-3/4 to yield 6.92%.

In short-term note trading, note yields fell about three to five basis points on the day, traders said, and the market took on new supply.

In new-issue activity, Montana awarded $85 million of tax and revenue anticipation notes to Morgan Stanley & Co. with a bid of 4 1/2%, a premium of $169,000, and a net interest cost of 4.1874%.

The notes were reoffered to investors at 4.10% net.

The issue is rated MIG1 by Moody's and SP1-plus by Standard & Poor's.

In late secondary trading, Los Angeles Trans were quoted at 4.10% bid, 4.08% offered. Texas Trans were quoted at 4.10% bid, 4.05% offered and Pennsylvania Tans were quoted at 4.19% bid, 4.16% offered. March New York State Trans were quoted at 4.95% bid, 4.90% offered, while New York City Rans were also quoted at 4.95% bid, 4.90% offered.

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