* Bad news…
Illinois is back in the doghouse among investors in the $3.7 trillion municipal-bond market.
The extra yield investors demand to own 10-year Illinois bonds rather than AAA munis has surged 0.55 percentage point since May to 1.64 percentage points, data compiled by Bloomberg show. The gap grew after lawmakers on May 31 passed a budget with a $2 billion hole. Then last month, the state Supreme Court ruled that government retirees’ health-insurance premiums were shielded from cuts, and Standard & Poor’s changed its outlook on Illinois to negative.
But it has no impact on state sales for now…
The penalty may have little immediate consequence. Illinois has no plans to borrow for the rest of 2014, Abdon Pallasch, the state’s assistant budget director, said in an e-mail.
And, obviously, some traders are just too ideological to be smart about investing…
Not all investors are shunning the state. With muni yields close to generational lows, investors are shifting into riskier securities such as those from charter schools and senior-living communities. Those bonds are among the most likely to default, according to data from Municipal Market Advisors.
Illinois offers “a better risk-reward trade-off than other parts of the market,” said Lyle Fitterer, who helps oversee $34 billion of munis at Wells Capital Management in Menomonee Falls, Wisconsin. “You’d rather own a charter school than the state of Illinois? You have to take a step back and ask if that makes sense.”
* The Rauner campaign’s response…
“Illinois’ credit rating has been downgraded 13 times under Pat Quinn and now, because of his failed leadership, our state’s economy and finances are still broken. Pat Quinn put special interest politics ahead of Illinois workers. We need to change direction before it’s too late.” – Rauner campaign spokesperson Mike Schrimpf […]
There are real opportunities to address the state’s structural deficit. To do that, we need to shake up Springfield and bring back Illinois – and voters will get that opportunity in November when they elect Bruce Rauner to be their next governor.
You gotta love how they think repeating “shake up Springfield and bring back Illinois” will solve all our problems.
You can’t fix the structural deficit with magic fairy dust words.