General Obligation Bonds

Worries about out-of-control state deficits, underfunded municipal pension plans and rising interest rates have been kicking the teeth out of the municipal bond market lately, with prices plunging and yields soaring. And that's got some contrarians saying that now may be the time to jump into the market. "This is a great time to get into munis for anyone looking for income in their portfolio," said Mark R. DeMitry, senior portfolio manager at the Oppenheimer Funds. "If you have a long-term horizon and can withstand the ups and downs of the market, it seems like there's a great opportunity.

California will sell $2.7 billion worth of bonds in March, tapping the bond market for the first time since its credit rating was boosted earlier this year. The Golden State will sell $2.2 billion worth of general obligation bonds, which are tax-exempt, and $310 million worth of bonds that are subject to taxes. The sale will be conducted March 12 and 13, according to state Treasurer Bill Lockyer's office. It's the first time the state has sought debt financing since Standard & Poor's upped the state's credit score to A from A-. When giving the state that positive grade, the credit rating agency cited "California's improved fiscal condition and cash position, and the state's projections of a structurally balanced budget through at least the next several years.

Security Pacific Merchant Bank, a unit of Security Pacific National Bank, acting as lead manager, announced the $96-million issue. Proceeds from the bond sale will be used for construction of adult and juvenile detention facilities in the county. This is the first issue of general obligation bonds by Los Angeles County in 21 years, the last being a $23.28-million bond in 1966 for health-care facilities.

Demand for California general obligation bonds was strong during a just-finished three-day sale, state Treasurer Bill Lockyer reported. The state sold $930.7 million in bonds, ranging in maturities from five to 26 years, to retail customers Tuesday and Wednesday. That represented 47% of the $1.98-billion offering. The remaining bonds were sold to institutional investors Thursday. "We were hoping for strong demand, and we weren't disappointed," Lockyer said. The bonds are being sold to refinance existing debt and proceeds are not being used to pay for new infrastructure, the treasurer's office said.

Moody's Investors Service has lowered its credit rating on the state's general obligation bonds from Aaa to Aa, the first time it has fallen below the top rating in 25 years, the company said. Moody's cited the state's troubled economy for its action. Moody's said Texas has enjoyed a Aaa bond rating since 1962. The Aa rating is the firm's second-highest category, and only 11 states currently have been assigned the Aaa rating, Moody's said.

California will sell $1 billion in general obligation bonds Wednesday, the first such debt offering since the state last month reported a dramatic improvement in its 2005-06 budget outlook. The tax-free interest rates that investors demand on the bonds may show whether Wall Street is taking a more optimistic view of the state's longer-term finances.

A lot of big numbers — but no smoking gun. That's what California Treasurer Bill Lockyer says he has found, so far, in probing major Wall Street banks' trading in so-called credit default swaps on the state's municipal bonds. Lockyer last month sent letters to six banking giants, including Goldman Sachs Group Inc. and JPMorgan Chase & Co., questioning whether their activities in the swaps market might be driving up interest rates on the state's debt — even as the banks earn lucrative fees from underwriting new state bond offerings.

California sold $782 million in tax-free general obligation bonds Wednesday to finance infrastructure projects. All of the bonds were purchased by Citigroup, which is expected to resell them to other investors. The bonds were sold in maturities from 2005 to 2034 at yields between 2.7% for the shortest maturities and 5% for the longest.

In his column about the overuse of bonds by state government (Opinion, Oct. 7), Cary Lowe incorrectly states Proposition 136, which I authored, requires a two-thirds vote for new taxes. In fact, Proposition 136 requires a simple majority vote if the taxes go into the general fund where spending can be prioritized. The two-thirds requirement applies only to "special taxes," those taxes which are permanently locked in for special purposes. Lowe also misses the mark when he argues that general obligation bonds should receive a majority vote for passage.

Worries about out-of-control state deficits, underfunded municipal pension plans and rising interest rates have been kicking the teeth out of the municipal bond market lately, with prices plunging and yields soaring. And that's got some contrarians saying that now may be the time to jump into the market. "This is a great time to get into munis for anyone looking for income in their portfolio," said Mark R. DeMitry, senior portfolio manager at the Oppenheimer Funds. "If you have a long-term horizon and can withstand the ups and downs of the market, it seems like there's a great opportunity.

California is counting on investors to buy almost $14 billion in new debt over the next two weeks as the state returns to the bond market after the drawn-out battle to reach a budget agreement. The budget deal of Oct. 8 already looks out of date: The state's chief fiscal analyst on Wednesday estimated that Sacramento would have to plug a total of $25.4 billion in shortfalls by mid-2012. That may make some bond investors nervous, but many have gotten used to scary fiscal headlines about California for the last decade.

A lot of big numbers — but no smoking gun. That's what California Treasurer Bill Lockyer says he has found, so far, in probing major Wall Street banks' trading in so-called credit default swaps on the state's municipal bonds. Lockyer last month sent letters to six banking giants, including Goldman Sachs Group Inc. and JPMorgan Chase & Co., questioning whether their activities in the swaps market might be driving up interest rates on the state's debt — even as the banks earn lucrative fees from underwriting new state bond offerings.

California and its local governments have long counted on a large captive audience for their debt: Many of the buyers are high-income individual investors who live here and find the federal and state tax exemption on California municipal bond interest too attractive to pass up. This has been one case where having most of your eggs -- or at least your bond eggs -- in one basket seemed defensible. After all, municipal bond defaults have always been rare events. They still may be relatively rare for a long time to come.

California and its local governments have long counted on a large captive audience for their debt: Many of the buyers are high-income individual investors who live here and find the federal and state tax exemption on California municipal bond interest too attractive to pass up. This has been one case where having most of your eggs -- or at least your bond eggs -- in one basket seemed defensible. After all, municipal bond defaults have always been rare events. They still may be relatively rare for a long time to come.

California suffered a painful snub by investors Thursday as the state's attempt to sell $4.5 billion in general obligation bonds failed to attract enough demand to raise the full amount. After boosting interest rates on a chunk of the debt, the state cut the total size of the deal by 8% to $4.14 billion, Treasurer Bill Lockyer said. The debt, split among taxable and tax-free bonds, will finance infrastructure projects. Municipal bond analysts said California was, in part, a victim of circumstance: The bond market overall -- including muni, corporate and U.S. government issues -- hit a wall last week after months of ravenous investor and trader demand that had pushed yields sharply lower.

California came up short as it tried to sell longer-term municipal bonds to individual investors this week -- the first such sale since last spring. The steep decline in market yields on muni bonds since July has left many investors unwilling to lock up their money in new bonds, traders said. California, which is offering $1.3 billion in tax-free general obligation bonds to finance voter-approved infrastructure projects, said it took in orders for $428 million, or 33% of the total, on Tuesday and Wednesday.