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California Muni ETFs Plays as State Plans $1.6 Bond Sale


California is set to offer the largest general-obligation municipal bond sale since October. Investors interested in gaining targeted exposure to Californian muni debt can take a look at a couple exchange traded fund options.

California plans to sell $1.6 billion of general obligation bonds next week to finance public-works projects and refinance bonds, reports Michael B. Marois for Bloomberg.

The bond offering is California’s first taxpayer-backed offering since Governor Jerry Brown proposed a $106.8 billion general-fund budget that outlined the state’s largest surplus in over a decade.

Consequently, Standard & Poor’s ratings agency raised its outlook on $75 billion of California’s bonds to positive due to plans to use the surplus to pay down debt. In January, S&P said California’s credit could be upgraded to A+ within two years if Brown’s proposals pass. The state currently has an A rating, but it is still the second-lowest S&P rating among U.S. states.

General-obligation bonds have come under fire after the Detroit’s record bankruptcy filing shook the munis market. [Detroit Bankruptcy Casts Shadow Over Muni Bond ETFs]

There are a couple of California-specific muni bond ETFs available to investors.

The iShares California AMT-Free Muni Bond ETF (CMF) has an effective duration of 6.94 years and offers a 4.53% 30-day SEC yield, or a 6.99% 30-day SEC yield for those in the highest income bracket. CMF comes with a 0.25% expense ratio.

The SPDR Nuveen Barclays California Municipal Bond ETF (CXA) has an adjusted duration of 8.8 years and a 2.35% 30-day SEC yield, or a 4.78% 30-day SEC yield for those in the highest income bracket. CXA comes with a 0.20% expense ratio.

The PowerShares Insured California Municipal Bond Portfolio (PWZ) has an effective duration of 8.38 years and a 3.71% 30-day SEC yield. PWZ comes with a 0.28% expense ratio.

Additionally, broad muni bond ETFs, like the iShares National AMT-Free Muni Bond ETF (MUB) , also have a hefty allocation toward California. California makes up 22.9% of MUB. [iShares to Roll Out New Muni Bond ETF Thursday]

For more information on the munis market, visit our municipal bonds category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.