Sacramento:  The bond market is showing California is no Greece.

Debt issued by California, the world's eighth-largest economy, is outperforming Greece's bonds as funds including Cumberland Advisors say investors are betting the lowest-rated US state's credit risk has been exaggerated.

The cost to protect against California not paying its obligations is the lowest relative to Greece in at least 15 months, according to data compiled by Bloomberg.

Largest deficit

Greece, with the European Union's largest budget deficit and an economy one-fifth the size of California's, is grappling with a debt crisis that's resulting in skyrocketing borrowing costs.

The yield on the 10-year Greek bond rose to 7.16 per cent on January 28, the highest since October 1999, prompting European leaders to pledge aid to the nation.

Even with an $18 billion budget gap expected over the next 15 months, California sold $3.4 billion in taxable debt last week at its lowest costs since Nov-ember as overseas buyers purchased 30 per cent of the securities.

"Investors are voting with their feet and they are coming to America," Peter Demirali, head of the fixed-income department at Cumberland Advisors in Vineland, New Jersey, which manages $1.4 billion, said. "They are saying that they will lend a billion dollars to California, no problem."

California's constitution gives debt service priority on the $88 billion general fund, second only to education. The state has never missed a bond payment. Debt service as a ratio of the general fund is 6.7 per cent, according to Treasurer Bill Lockyer.

"It's interesting that there is this Greece analogy around, which I think is far too apocalyptic for the facts," Lockyer said March 30 in a Bloomberg Television interview.

"As sovereign entities go, our debt is rather modest, so it seems to be an unfair comparison that creates doubts with investors."

Extra yields

Elsewhere in credit markets, the extra yield investors demand to own corporate bonds rather than government debt fell one basis point yesterday to 149 basis points, or 1.49 percentage point, the lowest since November 2007, Bank of America Merrill Lynch's Global Broad Market Corporate Index shows.

Average yields rose to 4.015 per cent, the highest since March 26. The securities returned 0.62 per cent last month compared with 0.37 per cent in February and 2.8 per cent for the quarter through March 31, the data showed.