* The failed lame duck session has so far been greeted with a yawn by investors. From Bloomberg…
Illinois debt is close to the strongest in two years even after state lawmakers failed for the second time since August to fix the nation’s worst-funded pension system.
The $97 billion of unfunded retirement obligations that Democratic Governor Pat Quinn has likened to a python strangling Illinois are rising by $17 million a day. Moody’s Investors Service rates Illinois A2, five steps below the top rank and the lowest among U.S. states. Last month, it threatened another downgrade without pension changes.
Yet investors such as Eric Friedland at Schroder Investment Management North America said they expect the state will repay its general-obligation securities even though it faces a backlog of $8 billion in bills from vendors. The extra yield buyers demand on debt from Illinois and its localities shrank to as little as 1.32 percentage points over AAA munis last month, the least since February 2011.
“I anticipate credit quality will diminish, but at the end of the day, Illinois G.O. bonds aren’t going to ever default,” said Friedland, head of muni-credit research in New York at Schroder, which oversees about $2 billion of the bonds. Rating companies will probably cut the state’s credit another level, he said.
* This is why there has been no run-up in Illinois interest rates as of yet…
Illinois by law must appropriate funds for debt service, according to a 2011 Fidelity Investments report that ranked it among the seven states with the strongest legal provisions.