California Treasurer Phil Angelides said Thursday that fears of rising interest rates will expedite the sale of a large portion of the $15 billion in deficit bonds.

While the treasurer had planned to sell $6 billion in deficit bonds before June, he said the state will now sell $12.3 billion worth of the bonds between early May and mid-June.

The treasurer's office, Angelides said, "worked hard to accelerate this bond sale because we know what the interest rate environment is today. ... If you know it's reasonable today, and there's a chance that it will rise, you should get into the marketplace as soon as possible."

It's also critical to bolster the state's cash position in case Gov. Arnold Schwarzenegger and lawmakers can't agree on a budget on time, Angelides said. In the last several years, legislators have struggled to meet the constitutionally mandated July 1 deadline to pass a state budget.

The bonds will be broken up into different products to prevent oversaturating the market for California general obligation bonds, Angelides said. Some will be insured, others will offer variable interest rates that change with the interest rate markets, and some will carry fixed rates.

"There's something for everyone," said Joanne Larkin, vice president and senior portfolio manager for Charles Schwab Investment Management. Larkin added that she expects the bonds will be popular among investors.

Larkin and other experts say that if California can move quickly - before rates rise - it can sell the bonds at a lower cost.

The higher the interest rates, the more expensive it is for an issuer to sell municipal bonds, which are sold to investors to raise millions of dollars. Typically, municipal bonds are used to finance expensive public works such as schools or highway projects. The bonds approved by voters in March were earmarked to pay off short-term borrowing.

In March, California voters approved the deficit bonds by passing Propositions 57 and 58, after Schwarzenegger and lawmakers put the measures on the state ballot. After the voters approved the bonds, Angelides said he expected to sell $6 billion before the bill from the short-term borrowing came due.

Bond market watchers said interest rate hikes from the Federal Reserve Bank appear likely in the coming year. "I don't like the way this market feels," said George Strickland, who manages municipal bond funds for Thornburg Investment Management. "The Fed is a little behind on raising interest rates."

Angelides said the $12.3 billion in bonds will be sold in two rounds. In the first, on May 4, the state will sell $6 billion to $7 billion in a week. The state will sell the second round of $5 billion to $6 billion in bonds from May 24 till June 15.

Angelides said he expected the bonds to come to maturity over 18 years, based on annual sales tax growth of 2 percent.

However, Department of Finance spokesman H.D. Palmer said the Schwarzenegger administration believes the debt can be paid off over nine years, counting on 5 percent sales tax growth a year and proceeds from a "rainy day" fund set up by Proposition 58, which voters approved alongside the bond measure in March.

Angelides said that bond rating agencies - which measure issuers' credit - will weigh in on the new bonds next week, and it's likely the voter-approved bonds will be rated higher than the state's regular general obligation bonds. While both are backed by the state's general fund, the voter-approved bonds will also have a quarter-cent sales tax, which further protects against default.

Steven Zimmerman, managing director of Standard & Poor's bond rating service, wouldn't comment on ratings for the new bonds, but said the state's regular general obligation rating is still hampered by the ongoing structural difference between revenue and expenses in the California budget. Zimmerman's rating for California general obligation bonds is BBB, one of the lowest state bond ratings in the United States.

Still the market for California municipal bonds remains strong, say analysts. In part, that's because its lower rating ensures investors will recoup a bigger return - or yield - on their investment than they would if they invested in a higher-rated bond. A 30-year California $1,000 bond yields about $4 more per year than a top-rated municipal bond.