Goldman, Sachs & Co. won $602 million taxable California bonds yesterday, in a deal that also marked co-manager Salomon Brothers Inc.'s first foray into municipals since 1989.

The record size various purpose non-callable taxable general obligation bonds were won with a true interest cost of 7.9112%.

The bonds were aggressively priced to yield from 5.85% in 1992 to 8.15% in 2001, about 35 basis points over comparable Treasuries and about 15 basis points cheaper than where government agency paper was trading.

The issue is rated triple-A by Moody's Investors Service, Standard & Poor's Corp., and Fitch Investors Service.

Goldman, Sachs reported an unsold balance of $299 million late yesterday. There was $145 million remaining in the 2001 maturity, $57 million in the 1993 maturity, $32 million in the 1994 maturity, and $54 million in the 1995 maturity.

Six bidding syndicates competed for the issue and Merrill Lynch & Co. and Nomura Securities bidding together were the cover with a TIC of 7.9235%.

A Goldman, Sachs officer said that the issue met with some resistance because of the aggressive price, but that the deal saw broad investor interest, including traditional taxable buyers like pension funds, insurance companies, and banks.

"It was a very aggressive price and it seems to be moving along better now," said David C. Clapp, a general partner at Goldman. "We didn't expect to have it done by the end of the first day, but the government market is holding in and I think it will be okay."

Mr. Clapp added that taxable municipal bonds are a relatively new security and investors can be slower with orders.

"Investors aren't used to it, especially in this size," he said. "The taxable sector is tough. People really didn't know where this deal was going to come. New York City is really the only other large issuer and that's a different story."

New York City has included a taxable section in their recent borrowings and bonds have yielded as high as 10.9% in 2011.

Salomon Brothers, which relinquished its gip on municipal underwriting in 1987 when it bowed out of the market, was brought into the deal for its corporate marketing prowess.

"Solly is such a player in the taxable market that it makes tremendous sense to have them in," a Goldman officer acknowledged. "Their other problems aside, they move a lot of bonds."

Gedale Horowitz, a senior officer with Salomon Brothers' who once headed the firm's municipal bond department, said the deal's gilt-edged ratings made it attractive because there have been no 10-year triple-A rated corporate issues priced in the taxable primary sector.

Mr. Horowitz added that Salomon Brothers, which continued to bid on certain taxable municipals as late as 1989, might bid selectively on municipal issues in the future.

Some market participants noted that the California deal will help to define and shape boundaries in the taxable municipal sector.

"This deal will make people realize that taxable munis are not just a necessary evil," a New York trader said. "People will have to focus on the taxable sector and start thinking about it more, which will put some credibility into taxable munis. It's the perfect name at the perfect time."

In other primary action, Bear, Stearns as senior manager tentatively priced and repriced $87 million Lee County, Fla. School Board certificates of participation to raise the 2011 yield by three basis points.

The final terms included serials priced to yield from 4.75% in 1992 to 6.60% in 2003.

A 2011 term is priced to yield 6.877%.

The issue is insured by Financial Security Assurance and triple-A rated by both Moody's and Standard & Poor's.

Secondary trading was moderate as the market drifts in a range. Traders reported gains of 1/8 point late in the session in sympathy with the government sector. "If you're patient you can get your price," one New York trader said. "The market sort of hit a wall last week and there is still interest, especially in specialty state names, but most people seem to be on hold looking for an ease."

Market participants said that the trend is likely to continue until unemployment data is released the first week of September.

In the debt futures market, the September futures contract settled up 5/32 to 93.17 with the September MOB spread calculated at negative 140.

In secondary dollar bond trading, New Jersey Turnpike Authority 7.20s, due 2018, were quoted unchanged at 103 1/4-1/2 to yield 6.59% to the par call in 1999. Florida State Board of Education 6 3/4s of 2021 were unchanged at 98 1/4-1/2, where they returned 6.86% to maturity.

In the New York market, the latest Triborough Bridge and Tunnel Authority insured 6s of 2019 settled unchanged at 90 1/2-5/8 to yield 6.75%.

In other dollar bond activity, Colorado River Authority insured 6 5/8 s of 2021 were quoted yp 1/8 to 97 3/8-97 1/8 to yield 6.83%.

Yields in the short-term note sector sank anywhere from three to 10 basis points in moderate activity.

Traders said there was good retail demand with buyers still on the upside.

In secondary trading, a $25 million block of Los Angeles notes were out for the bid and the market was quoted near the end of cash trading at 4.50% bid, 4.45% offered. March California notes were quoted at 4.48% bid, 4.42% offered, while June California notes were quoted at 4.51% bid, 4.47% offered. Yields on March New York State Trans were three basis points lower on the day at 5.06% bid, 5.02% offered, while New York City notes were quoted at 4.60% bid, 4.50% offered in thin trading.

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