Moody’s Upgrades State’s Bond Rating

Credit-rating firm Moody’s Investors Service on Monday raised its rating on California’s bond debt, citing an improving state economy. It was the second upgrade in two years.

Moody’s raised California’s bond rating one notch to A2, the sixth-highest grade, and left a positive outlook on the rating, which meant it might be boosted further. The move affects $45 billion worth of general obligation bonds and related debt.

“The upgrade reflects a continuing favorable trend of recovery in the state’s economy and tax revenues,” Moody’s said.

California’s revenue rose 16.7% in the fiscal year that ended last month, according to the state controller’s office, because of the growing economy and a program that allowed back taxes to be paid without penalty.

California’s credit rating from Moody’s had dropped to just above junk status in December 2003, soon after Gov. Arnold Schwarzenegger won election during a campaign that centered on the record budget deficits then facing the state.

California still has the lowest credit rating of any state from Moody’s. But strong investor demand for the state’s tax-free bonds this year has driven yields lower. The yield on a Bloomberg News index of 20-year California bonds was at 4.41% on Monday, down from 4.67% on Dec. 31.