California bond yields rise to four-year high on budget impasse
California's fiscal crisis pushed yields on tax-backed debt to a four-year high as the state struggles with a $42 billion budget deficit, Bloomberg reported.
Bonds due in 10 years yield about 53 basis points, or 0.53 percentage point, more than general obligation bonds rated A+, the most since early 2004, according Bloomberg municipal bond yield indexes. California has approval to sell $53 billion of bonds for public works projects.
The nation's most-populous state will run out of money to pay bills as soon as February unless lawmakers end an impasse over how to close the funding gap. California has the second- lowest credit ratings in the country because of perennial fiscal shortfalls and legislative gridlock.
"The spreads have widened and investors are getting much more compensation for California bonds," said Paul Brennan, who oversees about $12 billion in municipal-bond funds for Nuveen Asset Management in Chicago. "There's still a lot of ups and downs to come unless there's some dramatic budget agreement that could change all that."
California general-obligation bonds maturing in 2038, with a stated interest rate of 5.25 percent, traded at 81.9 cents on the dollar to yield about 6.66 percent, according to the Municipal Securities Rulemaking Board. That's 1.57 percentage points more than three months ago.
Lawmakers have been deadlocked over how to fix the budget since November, when Governor Arnold Schwarzenegger called them into a special session. The only proposal to reach his desk is an $18 billion package of tax increases and spending cuts that he vowed to veto.