California is set to offer the largest general-obligation municipal bond sale since October. Investors interested in gaining targeted exposure to Californian muni debt can take a look at a couple exchange traded fund options.
California plans to sell $1.6 billion of general obligation bonds next week to finance public-works projects and refinance bonds, reports Michael B. Marois for Bloomberg.
The bond offering is California’s first taxpayer-backed offering since Governor Jerry Brown proposed a $106.8 billion general-fund budget that outlined the state’s largest surplus in over a decade.
Consequently, Standard & Poor’s ratings agency raised its outlook on $75 billion of California’s bonds to positive due to plans to use the surplus to pay down debt. In January, S&P said California’s credit could be upgraded to A+ within two years if Brown’s proposals pass. The state currently has an A rating, but it is still the second-lowest S&P rating among U.S. states.
General-obligation bonds have come under fire after the Detroit’s record bankruptcy filing shook the munis market. [Detroit Bankruptcy Casts Shadow Over Muni Bond ETFs]
There are a couple of California-specific muni bond ETFs available to investors.
The iShares California AMT-Free Muni Bond ETF (NYSEArca: CMF) has an effective duration of 6.94 years and offers a 4.53% 30-day SEC yield, or a 6.99% 30-day SEC yield for those in the highest income bracket. CMF comes with a 0.25% expense ratio.
The SPDR Nuveen Barclays California Municipal Bond ETF (NYSEArca: CXA) has an adjusted duration of 8.8 years and a 2.35% 30-day SEC yield, or a 4.78% 30-day SEC yield for those in the highest income bracket. CXA comes with a 0.20% expense ratio.
The PowerShares Insured California Municipal Bond Portfolio (NYSEArca: PWZ) has an effective duration of 8.38 years and a 3.71% 30-day SEC yield. PWZ comes with a 0.28% expense ratio.
Additionally, broad muni bond ETFs, like the iShares National AMT-Free Muni Bond ETF (NYSEArca: MUB), also have a hefty allocation toward California. California makes up 22.9% of MUB. [iShares to Roll Out New Muni Bond ETF Thursday]
For more information on the munis market, visit our municipal bonds category.
Max Chen contributed to this article.