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California Floods Muni Bond Market with Issues

By    |   Monday, 16 Nov 2009 09:44 AM

California has flooded the municipal bond market with $21 billion of new issues over the last seven weeks, helping to push muni yields around the country to two-month highs.

The golden state is issuing the bonds to fund its massive budget deficit, which may reach $14.5 billion over the next 18 months, and to pay for infrastructure projects.

For California bonds, muni yields have truly soared.

A recent sale of almost $1.9 billion of four-year California bonds yielded 4 percent, jumping from 2.48 percent in a similar issue just two weeks earlier.

"Yields are higher because California has so much paper in the market," Matt Fabian, senior analyst at research firm Municipal Market Advisors, told the Los Angeles Times.

The weak demand for the $1.9 billion issue reflects the fact that the bonds were created as part of a government plan to trim the budget gap that can generously be called smoke and mirrors.

Proceeds from the bonds will be used to reimburse local governments for the $2 billion in property tax revenue that the state is borrowing from them to cut the budget deficit.

California isn’t the only state weighing down the muni market.

“We’ve just recently begun to reduce our exposure to municipals because we are uncomfortable with some of the fiscal practices of some of the government entities,” Allstate insurance CEO Thomas Wilson told Bloomberg.

Allstate cut its municipal holdings 8.3 percent to $22.1 billion in the third quarter.

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California has flooded the municipal bond market with $21 billion of new issues over the last seven weeks, helping to push muni yields around the country to two-month highs.The golden state is issuing the bonds to fund its massive budget deficit, which may reach $14.5...
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2009-44-16
Monday, 16 Nov 2009 09:44 AM
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