California is preparing to sell $2.5 billion in tax-exempt general obligation bonds in the near future. This will mark the state’s second largest offering of the year. The proceeds from this sale will be allocated towards funding voter-approved projects, paying off existing commercial paper, and refunding outstanding general obligation bonds. Fitch Ratings has assigned a AA rating with a stable outlook to this debt issuance, 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.
Newly issued tax-exempt bonds in California have been in high demand, as investors are looking to protect their income from the state’s high tax rates. Additionally, investors are eager to secure yields before potential rate cuts by the Federal Reserve in the coming months. California’s tax rates, especially for high earners, can reach as high as 13.3%, making tax-advantaged investments like municipal bonds very attractive. As a result, these California bond offerings can often be priced at yields lower than AAA-rated benchmark municipal securities.
Recently, the Trustees of the California State University completed a bond sale totaling $671 million. The majority of these bonds were tax-exempt, with only a small portion being taxable. Despite this mix, the yields on these bonds were up to 26 basis points below the benchmark, showcasing the strong demand for California municipal bonds.
California’s bond market remains robust, with investors eagerly seeking tax-advantaged investments in the face of high state tax rates. The upcoming $2.5 billion bond offering is expected to attract significant interest from investors looking to diversify their portfolios and secure attractive yields in the current market environment.