California IOUs don’t look so hot anymore

July 20, 2009

Reuters is reporting that California lawmakers are close to inking a deal to close the $26.3 billion budget gap. You know what that means: no more IOUs. So don’t expect to see the IOUs popping up on a trading screen near you.

While a deal will bring the IOU drama to an end, it should create a new one in financial markets: a jump in California muni bonds since an agreement takes the prospect of default – no matter how unlikely it was in the first place – off the table.

From Reuters:

SACRAMENTO, California (Reuters) – California’s top lawmakers told reporters on Monday they were confident an agreement with Governor Arnold Schwarzenegger on a state budget that closes a $26.3 billion deficit would be reached later in the day and voted on by both houses of the legislature on Thursday.

The government of the most populous U.S. state, also the world’s eighth-largest economy, began its fiscal year on July 1 facing the massive shortfall due to a plunge in revenues propelled by the recession and rising unemployment.

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