18.06.2009
Every time bad news comes out
"Every time bad news comes out, the front end of the curve gets hit hardest," Vonella added, noting California's fiscal crisis and its need for short-term debt has cast a gloom over sentiment about the near-term prospects for stability taking hold on state finances.
"There is a fear of excess short-term supply, that revenue anticipation notes would create pressure in that area of the curve and then there are short-term risk factors, which require more return in that sector of the curve," Vonella said.
Since May 1, the yield on the five-year California GO scale is up 92 basis points, compared with a rise of 41 basis points for the five-year benchmark MMD triple-A scale and a 16 basis point increase in the yield on the five-year GOs of New York state, which also has some of the nation's worst financial problems.
California's yield rise reflects the risk premium for the state's debt in light of its budget woes, Vonella said.
California's budget problems are affecting the muni market in other ways as well, said Dennis Ciocca, a senior managing director at public finance banker Sutter Securities Inc.
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