California has recently announced a plan to sell $2.5 billion of tax-exempt general obligation bonds, marking it as the state’s second largest offering this year. The proceeds from this sale will be utilized to finance various voter-approved projects, pay off outstanding commercial paper, and refund outstanding general obligation bonds.
Fitch Ratings has assigned a AA rating with a stable outlook to the debt, while S&P Global Ratings rates California AA-minus with a stable outlook, and Moody’s Ratings assigns an Aa2 rating with a negative outlook. The bonds are scheduled to be priced in a negotiated sale on August 27, with Bank of America Corp. and Barclays PLC. acting as joint senior managers.
California is known for its high taxes, with the state levying a rate of at least 13.3% on its highest earners. This has resulted in a high demand for tax-advantaged investments, making California bond deals an attractive option for buyers looking to shield their income from the state’s taxes. The state’s abundance of billionaires and millionaires has further increased the appeal of such investments.
The current market conditions have also played a role in the success of California’s bond sales. With anticipated rate cuts by the Federal Reserve later this year, buyers have been eager to lock in yields before any potential changes. This has led to an increased demand for new sales of tax-exempt bonds in California, with buyers willing to accept lower yields compared to AAA-rated benchmark muni securities.
In a recent bond sale by the Trustees of the California State University, $671 million of bonds were sold, with yields reaching as much as 26 basis points below the benchmark. This indicates a strong interest from investors in California’s tax-exempt bonds, further highlighting the state’s appeal in the current market environment.
California’s issuance of tax-exempt general obligation bonds is a strategic move that aligns with market dynamics and investor preferences. The state’s high-tax environment, coupled with strong investor demand for tax-advantaged investments, has contributed to the success of recent bond sales. With ongoing interest from buyers and favorable ratings from major agencies, California’s bond offerings continue to be a popular choice for investors seeking attractive yields in the municipal bond market.