Up until now, the bond market has been pretty okay with the California's budget disaster, figuring that somehow, someway the state would be good for its obligations. But traders may be getting antsy. The LAT's Tom Petruno posts that market yields on the state's outstanding general obligation bonds have risen in the last week - not enormously but enough to notice.

As investors perceive more risk in lending to California than, say, to Texas, they naturally raise the Golden State's cost of money. That's the penalty for being profligate. Once a new budget is in place, the big test for the state will be the $10 billion (or so) in short-term borrowing it must undertake in July. The talk in the muni market has been that California will have to pay an annualized tax-free rate of 5% or more for that money, which is expected to consist of notes maturing in one to two years.