California's Bonds Are Declared Junk

Image via Wikipedia

While the State of California debates its budget the value of its State issued bonds is falling. Previously rated A2, the lowest of any US state, Moody's Investor Services is warning California that its bond rating may be declared as Junk Bonds.

Junk Bonds are those that are purely speculative, not investment grade, and not suitable for an investment portfolio.

"If the legislature does not take action quickly, the state's cash situation will deteriorate to the point where the controller will have to delay most non-priority payments in July," Moody's said in a statement. "Lack of action could result in a multi-notch downgrade of Californias General Obligation Bonds," Moody's added.

Moody's said California's leasing debt and other state-related debt are also on review, affecting a total of $72 billion of debt. A downgrade could push California's borrowing costs up at time when state officials expect to issue up to $9 billion in revenue anticipation notes as soon as possible after a budget agreement is notched, a deal whose timing is in doubt.

California has suffered the largest drop in revenues since the Great Depression, including a steep drop in personal income taxes and sagging retail activity as consumers reined in spending, and the long-running downturn in housing.

Rising joblessness is also weighing on the state. Its unemployment rate jumped to 11.5 percent in May from 6.8 percent a year earlier, state officials reported on Friday.

Sphere: Related Content