California Municipal Bond Woes are in the news again. On Tuesday, November 16, 2010 in lawsuit was filed challenging California plan to sell state-owned buildings to raise cash and then lease them back. This lawsuit help delay the short term revenue anticipation notes offering although S&P and Moody’s did not alter their ratings due to the disclosure.
Bank analyst Chris Whalen was bold enough to predict that California would default on its debt.
An article in the San Francisco Chronicle has quotes from several analysts, some of which made some interesting statements. Matt Fabian, An Analyst at Municipal Market Advisors states: “California’s budget issues, like all state budget issues, will mean less investment in new infrastructure, reduced social services and education, and likely higher taxes, all of which will equate to slower growth if not deflationary economics. Will debt payments be affected? Maybe, but that’s still a very remote possibility in a world of other much more likely outcomes.”
He goes on to say that the rush to sell Build America Bonds before the end of year deadline is also supply glut in that market and also the municipal bond market, causing some the following prices we’re seeing.
An article in the Wall Street Journal also covers California’s bond woes. Analysts question the timing of new offerings and see that investors do not have the appetite for new issues, and have been pulling money back.
“California’s timing unfortunately couldn’t be worse,” said Gary Pollack, head of fixed-income trading and research at Deutsche Bank Private Wealth Management. “This creates a fear among individual investors and probably could hurt the state in terms of paying a higher borrowing cost than if they’d done a deal at a different time.”
After pouring billions into municipal bond funds most of the year, investors pulled $115 million out of the funds last week, the Investment Company Institute said Wednesday. That was the first weekly outflow in seven months, ICI said.”