Nobody Wants Cal Bonds

John Seiler:

Bonds. California bonds. Nobody wants them.

Gov. Arnold Schwarzenegger has extended his seven years of destruction by wiping out the market for bonds, not just for California, but other states and cities. The Wall St. Journal:

America’s strapped states and cities took another hit Wednesday, with California seeing tepid demand for its latest bond sale and other governments pulling about $700 million worth of borrowing deals this week as investors continued stepping away from the municipal bond market.

The normally staid market has grown volatile the past week, posting its sharpest selloff in nearly two years, as investors demand higher interest rates to buy paper issued by states, cities and counties to finance their operations. Localities have been hammered by a drop in tax revenue amid the downturn—and unlike the federal government, most are barred constitutionally from running deficits….

California’s $10 billion bond sale this week was seen as a test of access for governments to the bond markets, and the middling interest signaled that municipalities could have to pay more to attract investors. The state further jolted the market by delaying the close of the bond sale, citing a lawsuit filed Tuesday that challenges a separate tactic the state is using to raise funds.

“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.”

“Couldn’t be worse” — that could be said about almost everything in California nowadays, except the weather. Jobs, business climate, taxes, pension obligations, state revenue, political leadership, deficits, debt, AB 32 and other regulations — couldn’t be worse.

Well, there is one good thing. In six weeks, Arnold will be gone.

Nov. 18, 2010

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