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Article Excerpt
The failure of California lawmakers to resolve the $38 billion budget deficit is wretched news for taxpayers, who inevitably face higher taxes and cuts in state services.
But it's money in the bank for many municipal bond investors.
Relative yields on California general obligation bonds have skyrocketed since January and are nearing historic highs in the secondary market.
The yield on the state's 20-year general obligation bonds was averaging 5.28 percent last week, while yields on AAA-rated bonds in other states are averaging 4.61 percent, according to Municipal Market Data, a unit of Thomson Financial.
For bond buyers, California is a gold mine--offering a spread, or yield premium, of nearly seven-tenths of a percentage point versus comparable muni bonds, at a time when interest rates have remained low by historical levels.
"When California general obligation bonds are yielding more than the market, now is a good time to buy," said Zane Mann, publisher of the California Municipal Bond Advisor newsletter. "But it's terrible if you're a taxpayer because it's costing the state hundreds of millions more in interest."
It's also not great for investors who purchased their California bonds before...
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