The spreads between Greece/German bunds and California/30-yr Treasuries are widening. Investors are demanding more for carrying the risk. The downgrade in CA paper yesterday will give the Greek bonds are run for their Drachmas…
According to a Reuters report, the spread between 10-year Greek government bonds and the benchmark Euro zone German bunds has risen to an 11-month high of 298 bps, up from 265 the day before. The high is 300 bps set about a year ago. The equivalent for Spanish bonds is trading at 81 bps premium over German bunds.
According to an article in Bloomberg, the spreads between CA debt and the 30-year Bond are also widening and PIMCO was quoted as saying that the CA debt crisis is headed back to disaster levels.
Bloomberg: “A taxable California bond that matures in 2039 traded today for an average yield of 7.79 percent in blocks of more than $1 million, the highest since Dec. 28, according to Municipal Securities Rulemaking Board data. That opened a gap of 3.15 percentage points between California’s bond and 30-year Treasuries, according to Bloomberg data.”
Add to that the fact that S&P downgraded California’s debt rating to AA- from AA…not that I hold S&P in any esteem – I don’t. But the fact is, that CA will now have to pay higher coupon payments on the issuance of new debt thanks to the downgrade. They deserved it.