So It Begins

Excerpts From Bloomberg:

California Raises Tentative Yields as Munis Fall a Second Day

By Jeremy R. Cooke
Oct. 7 (Bloomberg) -- California raised the yields it is telling investors they may get for buying part of a $4.5 billion bond offering after getting a weaker response than at a debt sale two weeks ago.
Municipal bonds fell for a second day. The BVAL Bloomberg municipal benchmark 30-year yield index rose almost seven basis points, or 0.07 percentage point, the most since July 9, to 4.53 percent at 12:09 p.m. New York time.
The deal from California, the largest borrower and the lowest rated among U.S. states, will push new municipal issues this week to the highest in five months, according to data compiled by Bloomberg. The state raised preliminary yields by two to four basis points from yesterday’s levels on maturities ranging from 2015 through 2029. Tax-exempt bonds due in 20 years may yield 4.66 percent, and those due in 2025 might pay 4.42 percent, according to Dan Solender of Lord Abbett & Co.
“These changes are pretty much reflecting the overall market moves, but it appears that they aren’t selling much to retail on the shorter ends,” Solender, who oversees $12.3 billion as director of municipal bond management at the firm in Jersey City, New Jersey, said in an e-mail. “With the overall market having a negative tone, it is probably more a market reaction than anything specific to the state.”
California is rated A, the sixth-highest of Standard & Poor’s 10 investment grades; Baa1, two steps lower, by Moody’s Investors Service and BBB, another level lower, by Fitch Ratings. The state has already sold $14.1 billion of long-term general obligation bonds and $8.8 billion in short-term notes this year.
42-Year Low
Investors are balking at the low level of yields after they reached the lowest since the 1960s. The weekly Bond Buyer 20 index, which tracks yields on 20-year general obligation bonds with an average Aa2 rating from Moody’s Investors Service, fell to 3.94 percent last week, the lowest since August 1967.
Record demand for tax-exempt mutual funds, at a time when the Build America program has enticed local governments to sell taxable debt for public works, pushed municipal bonds to their best year-to-date returns in at least 20 years.


California is arguably insolvent.
Standard & Poor's A rating does not reflect this reality.
Why would anyone want this state's bonds and the risk associated with them for a lousy 4.42% for 20 years?
This is the same state that earlier this year was issuing IOU's because it could not afford to pay its contracts on time.
4.42% is not much reward for the risk of a state that conceivably may make the march to bankruptcy within the next two years!
The long journey to Bond Auction Failure begins with financially weaker states raising their bond yields to attract capital.
In the mean time, more investors are wising up to the gigantic ponzi scheme of fiat currencies are are buying gold at over $1000/oz.