The $188 billion market for Build America Bonds is set to trail the rest of municipal debt for the first time as issuers face cuts to their federal subsidies while investors bet interest rates will rise.
California will sell an estimated $2 billion of general-obligation bonds this month after benchmark yields on municipal debt touched a three-month low Sept. 27, a spokesman for Treasurer Bill Lockyer said.
Servicing California’s general-fund debt will take a smaller chunk of the state budget -- 7.7 percent -- this fiscal year compared with the 9.8 percent estimated in 2009 by Treasurer Bill Lockyer, who cited lower interest rates.
Bonds issued by California school districts that defer billions of dollars in interest payments for decades are rallying to a five-month high as Governor Jerry Brown prepares to sign a bill limiting their use.
California should limit negotiated bond sales by school districts and restrict underwriters and financial advisers’ involvement in campaigns for voter approval of the offerings, according to state Treasurer Bill Lockyer.
Morgan Stanley and Citigroup Inc., criticized by California for arranging investment bets against state bonds, pitched Treasurer Bill Lockyer on ideas for legislation to sell $25 “minibonds” to expand sales to individuals, records from his office show.
California, which relies on private deals with banks for almost 80 percent of its bond offerings, plans its biggest competitive debt sale in six years as the state’s relative borrowing costs sink to the lowest level since 2008.