California officials are celebrating the overwhelming demand generated by the first sale of voter-approved deficit bonds, hoping it is a signal that investors trust the state's economic future.

During the three-day sale, which ended Wednesday, total orders were almost double the $7.9 billion bonds available for sale. The sale of the second installment of the $15 billion in bonds that voters authorized on the March ballot will take place in late May and early June.

Officials offered differing reasons for the high demand, with aides to Republican Gov. Arnold Schwarzenegger calling it proof that California is headed in the right direction.

"The market demonstrated extreme confidence in California and where California is headed," said state Finance Director Donna Arduin.

But state Treasurer Phil Angelides and bond market watchers said the sale is not a reflection of the state's standing on Wall Street. They said it is primarily due to the fact that the bond is backed by a dedicated quarter-cent sales tax, making it an especially safe investment with an attractive yield.

"In an uncertain economic world ... California bonds have always been a good, secure safe haven," Angelides said. "I believe the results of this bond sale are more a reflection of the unique nature of these bonds."

Recently, the nation's three major bond rating agencies gave California's first sale of deficit bonds a single-A and two double-A scores. The rating agencies cited the dedicated sales tax as the reason for the higher rating for the deficit bonds.

California still holds the lowest credit rating in the country for its general obligation debt, which is paid by the state general fund and not backed by a dedicated revenue. Thus far, the rating agencies haven't raised the state's general obligation bond rating because of ongoing budget problems, said Joanne Larkin, vice president and senior portfolio manager for Charles Schwab Investment Management.

While "the story in California is improving, by no means is it out of the woods yet. ... (California) still needs to pass a budget," Larkin said.

Because of the high demand, California officials were able to lower the interest they had planned to pay investors. In the end, California's deficit bonds were offered at a price similar to the highest-rated triple-A bonds.

When the week began, buyers were offered bonds with five-year maturities at a 3.24 percent yield. By Wednesday, that yield had fallen to 3.17 percent. As of Wednesday, the generic, triple-A rated, five-year municipal bond carried a 3.09 percent yield.

The smaller yield on the deficit bonds will save money for California because the state will pay less to investors. But it also discouraged some buyers who were looking for bigger gains.

One such investor, George Strickland, who manages municipal bond funds for Thornburg Investment Management, gave the state's lead underwriter of the bonds, Lehman Brothers, credit for marketing the bonds well.

"Ultimately, they squeezed all the value out of the bonds for me," Strickland said. "Lehman should get a trophy for it."

Peter Taylor, managing director of Lehman Brothers' public finance department, said the key to selling the bonds was explaining the dedicated sales tax to both the bond rating agencies and prospective buyers of the bonds.

"It was getting on the horn to everybody you could possibly imagine and walking them through how the dedicated sales tax works," Taylor said. Without the dedicated source of funds, Taylor added, "it would have been a tougher deal, no doubt about it ... it would have cost taxpayers a boatload of money."

Angelides said that the true interest cost to the state was 4.02 percent. A dollar amount wasn't available from the treasurer's office on Wednesday. Once the second set of bonds - about $4.4 billion worth - is sold in late May and early June, Angelides said the interest cost for selling the entire amount will be less. The second set of bonds will carry a variable rate, which comes at a lower cost to an issuer, he said. A third sale has not been scheduled yet.

Other costs to the state were substantial. According to the treasurer's office, the state paid its underwriters $39.5 million to sell the bonds - almost $5 per $1,000 bond - and $3.4 million to bond counsels.

The state also paid $12.2 million to insure $1.97 billion of the bonds.

Officials said return rates for those who bought this week's bonds ranged from 1.33 percent to 4.85 percent, depending on the maturity.