California’s dramatically improved fiscal outlook is making the state’s bonds especially attractive this year, said Greg Kaplan, managing director and head of fixed income at City National Rochdale, in a Bloomberg article on August 25.
“The state of California has done a very nice job as far as improving its fiscal situation,” Kaplan told Bloomberg journalist Romy Varghese. “Five years ago, people didn’t want that paper. That fear is gone.”
“Bonds of the state, which was so strapped after the recession that it took to issuing IOUs and drew comparisons to Greece, are the best performers in the $3.6 trillion tax-exempt market this year after the obligations of Michigan. Investors are even willing to accept yields lower than benchmark indexes on the state’s short-maturity debt, data compiled by Bloomberg show,” the Bloomberg article said.
California, buoyed by its strongest credit rating in more than 14 years, sold $1.9 billion of general obligation bonds on August 24. Standard & Poor’s upgraded the state to AA-, its fourth-highest level, in July.
California’s economy grew nearly 30 percent faster than the country’s economy as a whole last year, and the state has won back every job lost in the Great Recession. In fact, it created more than 450,000 jobs in the past year – or 9,000 a week. Confidence in the Silicon Valley and other tech hotbeds pushed California to take nearly 60 percent, or $27 billion, of the country’s total venture capital funding.
In November 2014, Californians passed Proposition 2, which sets aside a fraction of the state’s income to pay off existing debt and contribute to its rainy day fund. Since then, California has been one of the most attractive states in the U.S.’s $3.6 trillion municipal bond market.
City National Bank provides investment management services in conjunction with City National Rochdale, its wholly owned subsidiary. As of June 30, 2015, City National Rochdale had assets under management of approximately $27.5 billion. City National Rochdale managed $14.8 billion of fixed income and $4.4 billion of municipal bonds as of June 30, 2015.
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