California Muni Bond Yields and Market Trends

California's muni bond market has been influenced by the state's economic growth and fiscal challenges.

California's muni bond yields have historically been lower than those of other states.

The state's strong economy has led to increased demand for muni bonds, driving down yields.

However, California's budget deficit has also led to concerns about the state's creditworthiness, potentially impacting muni bond yields.

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Individual investors showed a weak appetite for California municipal bonds, with orders for only 33% of the $1.3 billion in bonds offered.

The steep decline in market yields on muni bonds since July has left many investors unwilling to lock up their money in new bonds.

Bond yields were much higher in March, with the state paying an annualized tax-free yield of 5.85% on the 20-year bond, compared to 4.66% in the current sale.

Many individual investors no longer find muni yields attractive, said Brad Thiel, head of muni bond underwriting at brokerage Wedbush Morgan Securities.

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Lipper rankings are based on total return and relate to each share class, assuming reinvestment of dividends and no sales charge. Past performance is no guarantee of future results.

A Percentile rank is a percentage value between one and 100 percent, with the top percentile being better performing and the bottom percentile being the worst. Absolute rank is the numerical ranking of the fund relative to the total number of funds in the category.

The Taxable-Equivalent Yield for a Fund's share class with a negative SEC 30-Day Yield is not provided because it doesn't represent the yield that must be earned on a taxable investment to equal the Fund's yield on an after-tax basis.

A fresh viewpoint: Is Muni Bond Interest Taxable

Municipal securities can be a tax-exempt investment option for residents of certain states.

Typically, interest from municipal securities issued by a state or its subdivisions, authorities, instrumentalities, and corporations is exempt from U.S. federal, state, and local income taxes for residents of that state.

Some states allow residents to exempt taxes on interest from municipal securities issued by other states or from joint ventures between states.

Here are some key fund characteristics to consider:

Ratings and Risk are crucial factors to consider when investing in a fund. Lower rated securities in the fund are subject to greater credit risk, default risk, and liquidity risk.

Investing in California municipal securities and U.S. territories comes with unique risks. Political and economic developments within the state and territories can affect the fund's yield and share price.

There's no guarantee that all of the fund's income will be exempt from federal or state or local income taxes. The portfolio managers can invest up to 20% of the fund's assets in debt securities with interest payments subject to federal income tax, California state or local income tax, and/or the federal alternative minimum tax.

Investment income can be subject to certain state and local taxes, and the federal alternative minimum tax (AMT). Capital gains are not exempt from state and federal income tax.

As interest rates rise, the value of the bonds held in the fund will generally decline.

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California's recent attempt to sell municipal bonds to individual investors fell short, with only 33% of the total $1.3 billion in bonds being ordered.

The state's last sale of longer-term tax-free bonds in March saw individual investors grab 75% of the $4 billion in bonds offered.

Bond yields have declined significantly since July, with the 20-year bond offering a 4.66% annualized tax-free yield this time around, compared to 5.85% in March.

Long-term interest rates have tumbled in recent months as more investors shifted cash into bonds, often from money market accounts that pay virtually nothing.

The state will have to rely on institutional investors, such as mutual funds, to buy the rest of the tax-free bonds, as the relatively small book of orders from individual investors may not be enough.

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