(MONEY Magazine) – Gov. Arnold Schwarzenegger is doing his part to pump up the municipal bond market's scrawny yields. At his urging, California voters approved a March referendum to sell $15 billion in general-obligation bonds. That plugs a huge hole in California's budget--and creates an opportunity for some bond investors inside and outside the state.

Tax-exempt bond yields have declined lately, but California's G.O.s (backed by the Golden State's full taxing power) offer some of the nation's highest muni bond yields. State bonds maturing in 2014 recently yielded 3.88%; if you're a Californian in the 28% federal tax bracket, that's the equivalent of 5.95% from a 10-year taxable bond. By comparison, G.O.s of Florida and Massachusetts recently yielded 3.36%.

With muni yields likely to rise once the $15 billion in new bonds flood the market, the next few months may be a buying opportunity, especially for wealthier Californians. No, we're not over- looking the state's lowest in the nation Baa1 credit rating or its dicey budget situation. These are valid concerns if you're a bond trader, yet almost irrelevant if you hold bonds to maturity. The truth is that the average investor has a better chance of being struck dead by lightning than of losing principal and interest on a G.O. Moody's Investors Service says the default rate on all Moody's-rated state and local G.O.s has been zero since 1970. (That 0% default rate compares with 4.9% for Baa-rated corporate bonds.) What about the Orange County, Calif. bankruptcy in 1994, you say? That involved pension bonds, not G.O.s, and investors still recovered 100% of their money. Total Recoup, as Arnold might say. --JON BIRGER