Standard & Poor’s downgrade of California last week raises a crucial question: does the Golden State’s debt at some point become no longer appropriate for conservative retail investors?
“California will honor its obligations, but it will take us on a roller-coaster ride,” said Tom Dalpiaz, a portfolio manager at Advisors Asset Management. “You have to recognize that if you invest in California state GOs, it’s going to be a roller-coaster.”
With $63.9 billion of outstanding general obligation debt, California borrows more than any other state.
California also gives investors more ulcers than any other state.
Since 1990, Standard & Poor’s has changed California’s rating 13 times.
In one span early last decade, the state’s rating plunged to triple-B from double-A in barely more than two years.
The yield on 10-year California paper has ranged from 73% of the 10-year Treasury to 241% of the 10-year Treasury since 1990, according to Municipal Market Data.
That is more volatile than the municipal-to-Treasury ratio range on bonds issued by Pennsylvania or New York — or, for that matter, generic triple-A rated municipals....MORE
Tuesday, January 19, 2010
California General Obligation Investors Are in for a Bumpy Ride
From The Bond Buyer: