Mor On California 2.0

I wrote the following on June 29th –

“The bottom line is this – California can issue a lot of new bonds any time it wants. It will simply have to offer the bonds at interest rates substantially above where they are now. The Fed is artificially holding rates down by printing money, because nobody in their right mind is willing to buy bonds at these current interest rates. Just something to consider if you own a lot of Muni Bonds…”

California IOU’s will have a coupon of 3.75%. I believe that these IOU’s have 3-month maturities. A California Tax Free Muni with a 3-month maturity currently has a yield of about 1.2%. The income will be classified as a Municipal Debt, making it Exempt from Federal and State Income Taxes.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a3RcbccPHQhU

It will be interesting to see how this impacts the pricing of short term California Muni’s over the next few weeks…

Here is a link to Craigslist showing bids for California IOUs –

http://sfbay.craigslist.org/search/sss?query=iou