BlackRock rages against Illinois
Wednesday, Jun 8, 2016 - Posted by Rich Miller
* So far, anyway, they’re just spitting into the wind…
“We as municipal market participants should really be penalizing in some way, by almost not giving them any access to the market,” Peter Hayes, who oversees $119 billion as head of munis at BlackRock, said in New York on Wednesday. “Think about it — they’re a state without a budget, they refuse to pass a budget, they have the lowest funded ratio on their pension of any state, and yet they’re going to come to market and borrow money.” […]
“You wonder if maybe a market that continues to trade at lower yields has not made things as urgent,” said Sean Carney, BlackRock’s head of municipal strategy. “If you don’t have a budget, how do you come to the market and issue bonds?”
OK, good points, but the much hoped-for “bond vigilantes” never materialized, even after Detroit’s bankruptcy, the Bloomberg News article rightly notes.
* Also, this…
With tax-exempt interest rates near five-decade lows, that yield on Illinois bonds due in a decade is just 3.42 percent. When Illinois issued 10-year general obligations in May 2012, with credit ratings two steps higher than its current rank, the debt priced to yield 3.62 percent.
- illinois manufacturer - Wednesday, Jun 8, 16 @ 11:49 am:
Toyota just sold a bond for .001% so I could rage about Illinois being ripped off by wall street.
- Huh? - Wednesday, Jun 8, 16 @ 11:49 am:
“If you don’t have a budget, how do you come to the market and issue bonds?”
Good question that has many people scratching their heads.
BTW - Does this mean you won’t be buying Illinois bonds when they are issued in the near future?
- Hamlet's Ghost - Wednesday, Jun 8, 16 @ 11:53 am:
== Toyota just sold a bond for .001% so I could rage about Illinois being ripped off by wall street. ==
Germany has sold bonds with negative interest rates.
- Precinct Captain - Wednesday, Jun 8, 16 @ 11:55 am:
I guess “Budgetless Bruce” isn’t as sexy as “Bustout Bruce” to Rauner’s fellow financiers.
- DuPage - Wednesday, Jun 8, 16 @ 11:59 am:
Illinois should get bonds at 3.42% and use it to pay off some of the 8% pension fund debt.
- wordslinger - Wednesday, Jun 8, 16 @ 12:00 pm:
–“We as municipal market participants should really be penalizing in some way, by almost not giving them any access to the market,” Peter Hayes, who oversees $119 billion as head of munis at BlackRock, said in New York on Wednesday.–
Please tell us more about your plan for concerted action. I’m sure the Anti-Trust Division of the Justice Department would be fascinated.
Who’s this guy trying to kid, anyway? The muni market loves Illinois GO debt. Under law, they get paid first, automatically. There’s no risk and the juice is sweet.
- Athens - Wednesday, Jun 8, 16 @ 12:04 pm:
Blackrock trying to push up yield? SEC will not be amused.
- titan - Wednesday, Jun 8, 16 @ 12:08 pm:
This strikes me rather like the drug dealer lamenting the lack of fiscal discipline and savvy of his addict clientele.
- Dan Johnson - Wednesday, Jun 8, 16 @ 12:24 pm:
I wish I could get some VC money to build a market-making site to offer municipal bond issuances outside of the cartel that underwrites. We could get much lower rates with a global auction that sets prices for municipal bonds than by trusting the cartel to give us a reasonable rate. They made some phone calls and they ‘feel’ the market is at this rate. Yeah, that’s how prices are set today.
- VanillaMan - Wednesday, Jun 8, 16 @ 12:29 pm:
Opportunities-Pet Shop Boys, enhanced by VanillaMan
You’ve got the bonds, I’ve got the cash
Let’s make lots of money!
No magic wands, with credit lower than trash
Let’s make lots of money!
We’ve had enough of scheming and listening to jerks
We’ve got an AOL governor who’s afraid of doing work
We’re looking for a leader someone who gets stuff done
Ask yourself Brucie, wheres the victory that you won?
We’re drowning in bills, the fix is in
Let’s make lots of money!
Your vetos sure to kill, do our unions in
You’ll make lots of money!
Our social service helpers, are filing Chapter seven
Your outsourcing friends think Illinois is heaven
You finger point at others, blaming them for all
Tell us Brucie, what’s with your budget stall?
They’ve got the wealth, we’ve got the debt
Let’s make lots of money!
Let’s cut ourselves in, let’s place our bets
Let’s make lots of money!
- walker - Wednesday, Jun 8, 16 @ 12:34 pm:
BlackRock CEO Larry Fink is a strong Hillary Clinton supporter. He is rumored to be on the short list to be Hillary Clinton’s Secretary of Treasury.
Take this one with a pinch of political salt. It might simply be an attack on Rauner.
- Anon Downstate - Wednesday, Jun 8, 16 @ 12:45 pm:
This is just BlackRock ‘talking their book’. They’ve had kind of a rough couple of months. One might ALMOST feel sorry for the poor babies.
NOT!
First off, investors like BlackRock tried to be players in the entire Puerto Rico cluster and lost - across the board. They got nothing - NOTHING. If I accurately summarized what happened to them, I’d certainly be banned.
So they are starting earlier this time, and staking out a position. Btw, this isn’t just about IL - it’s about trying to create a few more basis points of return across their entire portfolio. When you have $117 bil invested, a few added points of return is a really big deal.
The whole PE business and the hedgies have had a really rough 2016 so far, and the entire “20 and 2″ cadre (the annual fees charged) has had it really hard in terms of performance, so the players are looking for increased return wherever they can find/manufacture it.
“When they say it’s not about the money, it’s always about the money”.
- PalumbrasWay - Wednesday, Jun 8, 16 @ 1:13 pm:
> Toyota just sold a bond for .001% so I could rage about Illinois being ripped off by wall street.
Those bonds were priced in yen. IL bonds are priced in dollars. Your comparison is somewhat Apples vs. Oranges.
- illinois manufacturer - Wednesday, Jun 8, 16 @ 1:56 pm:
Toyota has sold dollar bonds maybe we should sell us or euro
- PalumbrasWay - Wednesday, Jun 8, 16 @ 2:04 pm:
> Toyota has sold dollar bonds maybe we should sell us or euro
How about the State just pay its bills and have a balanced budget instead of inventing more nonsense financial math/instruments? We saw what swaps did to CPS. That worked out… poorly.
- illinois manufacturer - Wednesday, Jun 8, 16 @ 2:21 pm:
Yes we should but no reason not to get the best deal
- Sue - Wednesday, Jun 8, 16 @ 3:03 pm:
For those of you comparing rates Toyota and Germany borrow at to what Illinois pays must not know anything about credit risk. Whoever suggested that Illinois borrow to make pension payments- have you looked at TRS returns lately. It would be swell if the returns exceeded to cost of borrowing. Geez
- Arthur Andersen - Wednesday, Jun 8, 16 @ 3:39 pm:
Maybe the Illinois pensions should be doing some penalizing by cutting BlackRock outta their manager mix. Bond managers are a dime a dozen, and Larry Fink is a world-class tool.