Build America Bonds from California, the biggest issuer of the taxable debt in 2010, outperformed the market in the past six weeks as the state's 7.25% yield lured investors unfazed by the lowest state credit rating.
The extra yield above U.S. Treasuries demanded by buyers of 30-year California Build Americas sold Nov. 19 fell to 2.8 percentage points on Dec. 28 from 3.3 points when issued, according to data compiled by Bloomberg News.
The average spread on Build Americas jumped to 1.95 percentage points from 1.9 points in the same period, according to a Wells Fargo index.
Now that the program has expired, Build America investors may be less concerned with creditworthiness than liquidity, or how easily they can be sold, making secondary-market debt from the largest issuers, such as California, more attractive.
California will likely provide the most value to investors heading into 2011, said Bud Byrnes, the chief executive of RH Investment Corp. of Encino, Calif., which specializes in the state's securities.
