CHICAGO — Michigan captured a 0.53% interest rate on its Tuesday pricing of $1.25 billion of short-term notes, the lowest interest rate ever on a state cash-flow borrowing.

It is the seventh year in a row that the state has sold more than $1 billion of notes in order to pay bills while waiting for an influx of revenue. It  has seen a wide range of interest costs over the years — paying up to 3.5% in recent years, and 2% last year, amid a market so tumultuous that the state was forced to split its $1.4 billion sale into two transactions.

The finance team this year, confident it was entering a more stable market, predicted interest rates of around 1%. The final yield was 0.53%, according to the state treasurer’s office.

“This is an incredible rate, given what the market has experienced over the last year or so,” said Treasurer Robert Kleine. “Treasury staff, along with our financial advisers and legal team, are to be commended for getting this deal done at that level.”

The deal was scheduled to close yesterday,

Moody’s Investors Service and Standard & Poor’s assigned their top short-term marks to the notes: MIG-1 and SP-1-plus.

For the first time, the state did not ask Fitch Ratings to rate the deal.

The general obligation notes carry Michigan’s full faith and credit pledge. They mature on Sept. 30, 2010, the last day of the current fiscal year. Under state law, the treasurer is required to ensure that debt service on all GOs is paid on time using any available revenue under the treasurer’s control.

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