California municipal bonds and related exchange traded funds are attracting more investors as the go-to state-issued debt, overtaking others with similar investment-grade credit ratings.
Year-to-date, the iShares California AMT-Free Muni Bond ETF (NYSEArca: CMF) increased 8.4%, SPDR Nuveen Barclays California Municipal Bond ETF (NYSEArca: CXA) rose 8.5% and PowerShares Insured California Municipal Bond Portfolio (NYSEArca: PWZ) gained 10.9%. [ETF Spotlight: California Munis]
Interest rates on benchmark 10-year California debt securities hit the lowest since January 2013, whereas other states with equal credit ratings, like Pennsylvania, show higher rates, Bloomberg reports. Bond prices and yields have an inverse relationship, so a lower yield corresponds with a higher price.
CMF has a 1.86% 30-day SEC yield, CXA has a 2.11% 30-day SEC yield and PWZ has a 2.4% 30-day SEC yield.
California is attracting greater attention after Moody’s Investors Services upgraded the state’s debt rating to Aa3 last month, the fourth-highest mark, after Governor Jerry Brown helped cut the deficit and tax revenue from tech sector workers increased.
“California has recovered from a deeper hole and is viewed as more fiscally responsible under Governor Brown,” Craig Brothers, an asset manager at Bel Air Investment Advisors LLC, said in the article. “Investors view California as an improving credit with strong demand, and Pennsylvania as a stable or weakening credit with less demand.”
In California, the unemployment rate sits at around 7.4%, above the national average. The state’s gross domestic product rose 2% last year.