California Pays More for its Municipal Bonds

California today paid a higher yield than previously expected to sell $10 billion in revenue anticipation notes to help fund its budget deficit. The state sold $2.25 billion in RANs that mature in May 2011 at a yield of 1.50%. California’s state treasurer’s office said that the bulk of the sale ? $7.75 billion maturing in June ? will yield 1.75%.

This completes its first of three big debt sales, and it was quarter percentage point more than what was quoted to retail investors Wednesday because the municipal bond market has been undergoing a major selloff. Next week California will sell $1 billion in tax-exempt GO bonds, down from $1.75 billion originally planned.

Despite the government’s efforts at QE2 to lower interest rates, the reverse seems to be happening and interest rates appear to be rising. Reuters reports that because of the municipal bond yield increases, cities and states canceled $3 billion in planned bond sales which is more than 10% of the $24.4 billion of issues in the pipeline.