The turbulent clouds that settled upon California’s bond market are beginning to dissipate, as the state’s general obligation debt was recently upgraded to ‘A’ by Standards & Poor’s. It has been almost a year since the rating agency has had a sunny outlook on the Sunshine State, but a series of improving economic data and better fiscal position have been turning things around.
Business Insider’s slideshow showcases several key factors of how the state “came back from the brink.” Since bottoming around 2009, payrolls, home prices and economic activity have been increasing in California. Silicon Valley’s tech area is booming, San Francisco’s foreclosure rate is “one of the lowest in the nation” and the state has a Democratic supermajority, which may make political gridlock a thing of the past, says the online financial news site.
Governor Jerry Brown’s proposed budget now includes an $850 million surplus, which is a “stark contrast” to previous years when the state saw “deficits in the tens of billions,” reports the Wall Street Journal.
Last summer, John Derrick, portfolio manager of U.S. Global’s Near-Term Tax Free Bond Fund (NEARX) and Tax Free Bond Fund (USUTX) said that municipalities were as resilient as they have historically been, and S&P’s recent rating release gives further credence to that opinion. We believe Cali’s improvement is positive for bond investors, as the upgrade means there will likely be greater confidence in the state’s bonds.
In a diversified portfolio, municipal bonds remain a worthy investment. For those trying to minimize taxes, muni bonds are especially attractive in a taxable account, as they are free from state and federal taxes and offer attractive yields in a low rate environment. Find out which bond fund is right for you.
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