California Kicks Off $14 Billion in Bond Sales

Arnold Schwarzenegger
Arnold Schwarzenegger

California is set to begin sales of about $14 billion worth of debt today, the Financial Times reported, as the fiscally struggling state hopes that investors concerns over its troubles will be offset by their desire for yield.

The municipal bond market has generally been perceived a safe place to invest, but worries of possible increasing defaults and a reassessment of risk in the $2.8 trillion market are changing all that. Last week, muni bonds sold off because of these concerns and as federal subsidies, which have boosted the market, are coming to end and likely won't be extended with Republican gains in midterm elections.

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California's plans to sell its debt come just days after Governor Arnold Schwarzenegger called a special session of the state legislature to address the deficit now projected to be more than $25 billion over the next 18 months, the FT added.

Orders begin today for a $10 billion, two-part sale of so-called revenue anticipation notes due in May and June, targeted mostly at individual investors who can benefit from tax breaks on them. The success of the sale will come down to the right yield. Market expectations are for a relatively low yield of 1% to 1.5%.

On Nov. 18, the state is issuing $2 billion of Build America bonds in a sale aimed at institutions, the FT reported, and next week it will sell $1.75 billion of tax-exempt bonds.