Standard & Poor’s recently upgraded California’s credit rating to A+, the state’s fourth upgrade in the past two years, bolstering the state-specific municipal bond exchange traded funds’ status as a stable and reliable source of income.
Muni investors interested in Californian debt have a few ETF options to select from, including the iShares California AMT-Free Muni Bond ETF (NYSEArca: CMF), SPDR Nuveen Barclays California Municipal Bond ETF (NYSEArca: CXA) and PowerShares Insured California Municipal Bond Portfolio (NYSEArca: PWZ).
CMF has a 6.93 year duration and a 1.57% 30-day SEC yield, or 3.2% taxable equivalent yield. CXA has a 8.0 year duration and a 1.87% 30-day SEC yield, or a 3.81% taxable equivalent yield. PWZ has a 7.29 year duration and a 2.05% 30-day SEC yield.
Earlier this month, Standard & Poor’s credit ratings agency upgraded California’s credit to an A+ stable rating from A, following a measure to strengthen a so-called rainy day fund, reports Allen Young for Sacramento Business Journal.
Gabriel Petek, managing director for U.S. public finance at Standard and Poor’s, said that California has been gradually improving its budgetary management and fiscal performance.
Though the upgrade may appear insignificant, “in this world of state finances and capital markets it can make a big difference,” Petek said in the article.
California recently passed Proposition 2, the Rainy Day Budget Stabilization Fund Act, sets aside 1.5% of general-fund revenue each year into a rainy-day reserve, along with capital-gains taxes taht exceed 8% of the fund, Bloomberg reports.
The state also auctioned $1.2 billion in general-obligation bonds Thursday, priced to yield 2.4%. California is the most-indebted U.S. state, with $87 billion of bonds paid from general fund, or double that from a decade ago.
Broad municipal bond ETFs weight holdings by market capitalization, so the most heavily indebted issuers receive the largest weights. For instance, Californian debt is the largest component in most broad munis ETFs, including a 23.0% weight in the iShares National AMT-Free Muni Bond ETF (NYSEArca: MUB), which tracks broad investment-grade munis. [Muni Bond ETFs: Considerations & Factors to Watch]
iShares California AMT-Free Muni Bond ETF
For more information on the munis market, visit our municipal bonds category.
Max Chen contributed to this article.