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* From the twitters…
Munger on Moody's rating downgrade: "it's a risky proposition to lend to the state right now without a budget" pic.twitter.com/4tZ6pSmQv5
— Paris Schutz (@paschutz) June 9, 2016
Bond debts are paid via continuing appropriations.
…Adding… From the comptroller’s spokesman…
Hi Rich,
The Comptroller’s statement that Paris tweeted was in the context of how irresponsible it is to be entering a second fiscal year without a budget. But to be clear, when she was asked point blank if she could see any scenario under which the state would default on a bond payment, she unequivocally said “no” – bond payments are a top priority and will always be made on time.
Thanks,
Rich Carter
* Treasurer Michael Frerichs…
Illinois’ General Obligation debt remains a sound investment because the state’s constitution ensures that bond holders will be repaid. However, repeated downgrades weigh heavily on how individuals and investors perceive Illinois’ economic and political climate. Negative perceptions never are beneficial nor productive.
* The Question: Would you buy an Illinois bond? Take the poll and then explain your answer in comments, please.
posted by Rich Miller
Thursday, Jun 9, 16 @ 1:25 pm
Sorry, comments are closed at this time.
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Yes. Despite the continued problems, I believe that we will survive.
Comment by Huh? Thursday, Jun 9, 16 @ 1:30 pm
Yes, and have.
It’s sad to hear the Illinois comptroller, a supposedly financially savvy and responsible individual, spout such ignorant, negative nonsense.
Smart bond buyers love it, though. Drives up the juice.
Comment by wordslinger Thursday, Jun 9, 16 @ 1:30 pm
I took Sox at 15/1 to win the 2016 World Series too. I’m dumb with money.
Comment by LizPhairTax Thursday, Jun 9, 16 @ 1:31 pm
I feel “over-exposed” to investment in Illinois just by owning property in the State. Sooner or later it will be time to pay the piper!
Comment by Ole' Nelson Thursday, Jun 9, 16 @ 1:31 pm
Yes, it’s the only debt that does get paid.
Comment by PENSIONS ARE OFF LIMITS Thursday, Jun 9, 16 @ 1:32 pm
The treasurer is right. Pensions and bondholders are protected. I may buy some because they are a incredible deal in a negative interest world.
Comment by illinois manufacturer Thursday, Jun 9, 16 @ 1:32 pm
Like in the movie Casino… Illinois Bonds…..
“Get paid first, and get paid best”
Absolutely I’d buy Illinois bonds.
Comment by Oswego Willy Thursday, Jun 9, 16 @ 1:33 pm
returns on the investment are higher thanks to the Governor and his superstars.
Comment by JS Mill Thursday, Jun 9, 16 @ 1:33 pm
Yes, because Illinois bond probably yield higher than other such bonds, because of Illinois’ lower ratings. Also, because the state’s constitution ensures that bond holders will be repaid.
Comment by Joe M Thursday, Jun 9, 16 @ 1:35 pm
Did Madigan make her say that? That darn Madigan driving up the bond costs just like he did to CPS!
Comment by burbanite Thursday, Jun 9, 16 @ 1:37 pm
The bonds are backed by the full faith of the Illinois state government; the yields are higher; the state could use a boost in confidence and bondholders will be paid before anyone else.
Comment by Valerie F. Leonard Thursday, Jun 9, 16 @ 1:37 pm
Yes. The problem isn’t as much the likelihood of default as much as the impact excessive debt has on everything else a government should do.
Comment by AC Thursday, Jun 9, 16 @ 1:38 pm
I would if the maturity date on the bond was in 10 years or less. Who knows what would happen in 30 years…
Comment by My button is broke... Thursday, Jun 9, 16 @ 1:43 pm
Absolutely. By far the best rate I could find on a no risk investment. Illinois many not want to pay its debts but has the ability to do so just not the willpower at the given moment. As they say, crisis creates opportunity and it is my opportunity to get a risk free higher rate.
Comment by Anonymous Thursday, Jun 9, 16 @ 1:45 pm
===”it’s a risky proposition to lend to the state right now without a budget”===
Right on cue. Bad mouth the issuer right before going to market. It’s like they are intentionally driving up the cost of borrowing.
Why would they do that?
Comment by 47th Ward Thursday, Jun 9, 16 @ 1:51 pm
Will get paid. But value of the bond is decreasing. So no.
Comment by From the 'Dale to HP Thursday, Jun 9, 16 @ 1:52 pm
Absolutely…. in my darkest moments I wonder if Rauner isn’t running the state into the ground knowing there is money to be made in their purchase.
Comment by Anonymous Thursday, Jun 9, 16 @ 1:53 pm
I just do not prefer bonds no matter what the market climate is.
Comment by Allen D Thursday, Jun 9, 16 @ 1:53 pm
Less likely after what Congress did with Puerto Rico.
Just because the Illinois state constitution says bond payments have priority, all bets are off if someday Congress permits a Chapter 9 like process for Illinois. Some clever lawyering was done on that Puerto Rico legislation.
Comment by In a Minute Thursday, Jun 9, 16 @ 1:54 pm
- In a Minute -
Interesting take.
Has Puerto Rico file Chapter 9?
I don’t remember reading that.
Comment by Oswego Willy Thursday, Jun 9, 16 @ 1:56 pm
Third try, and I’m still a No on this.
Here’s a different reason if enable Rauner is off the table. When Enron was going great guns, I got into a pretty heated argument with a financier as to whether or not Enron was manipulating the market. I was soundly told, of course they aren’t, its all about supply and demand. Then, not much later, the “I got grandma” quotes came out, and Enron tanked. I am NOT saying that this is the same situation, but I just don’t like buying into a system that will inflict pain (very high interest rates) on future generations. we would not be at this rating if a certain executive had done his Constitutional duty to begin with. I fear that, in years to come, manipulation will come out, and there will be an even higher price to be paid. (end rant)
Comment by Anon221 Thursday, Jun 9, 16 @ 1:56 pm
Absolutely. Safe, pays well, and good secondary market.
Comment by Arthur Andersen Thursday, Jun 9, 16 @ 1:57 pm
Do not like long term bonds- period. Particularly buying them when interest rates area at historic lows.
But I would buy them over city bonds even from other states where the cities are in good shape.
Comment by Federalist Thursday, Jun 9, 16 @ 1:57 pm
Heck yes. It’s as close as you can get to a sure thing.
Comment by RNUG Thursday, Jun 9, 16 @ 1:59 pm
No risk of non-payment due to BK, so I would buy those above-average yield bonds.
Comment by Concerned Thursday, Jun 9, 16 @ 2:00 pm
When is Illinois going to pay tax refunds? Someone should ask Leslie.
Comment by Angry Bird Thursday, Jun 9, 16 @ 2:00 pm
OW- not yet…
http://www.usnews.com/news/business/articles/2016-06-09/with-debt-payment-looming-house-weighs-puerto-rico-bill
Comment by Anon221 Thursday, Jun 9, 16 @ 2:02 pm
—”Bond debts are paid via continuing appropriations.”
So were the legislative salaries, but they now aren’t being paid (even if no authority to do so). So “no” to the question. However, unlike not paying legislators (which probably is someone popular regardless of the constitutionally of it), failure to pay the bonds, and the subsequent further bond grade cuts, would be political suicide. But I wouldn’t take the risk in investment.
Comment by Just Sayin' Thursday, Jun 9, 16 @ 2:04 pm
I’m a little surprised by the results. Most people here were singing a different tune in April.
https://capitolfax.com/2016/04/13/bankruptcy-cheerleaders-beware/
Comment by Robert the 1st Thursday, Jun 9, 16 @ 2:04 pm
Should have qualified above by saying I did lose on Illinois Power / Dynergy stock … so I’m not always right.
Comment by RNUG Thursday, Jun 9, 16 @ 2:04 pm
I already did — it’s called SURS, and I’ve invested over $100K. Sure hope I can get it back some day.
Comment by Filmmaker Professor Thursday, Jun 9, 16 @ 2:07 pm
Maybe the State Pension funds could start buying them, at least that way they’re guaranteed some revenue from the state. And while we’re at it maybe the State could start paying their bills with them.
Comment by Gruntled University Employee Thursday, Jun 9, 16 @ 2:09 pm
Yep - higher yield than many stocks at these prices, and backed by the resources of the state (if full faith and credit mean little to you, think of all the real estate and physical plant the state owns if they ever needed to liquidate).
Comment by Six Degrees of Separation Thursday, Jun 9, 16 @ 2:11 pm
But… They haven’t..
Comment by Oswego Willy Thursday, Jun 9, 16 @ 2:12 pm
Yes. Perceived risk does not equal actual risk. It just ups the yield.
Comment by SAP Thursday, Jun 9, 16 @ 2:14 pm
So, we can’t declare bankrupcy, the assets of the state and its ability to tax will always exceed its ability to borrow, and its double tax except and a higher rate? Sign me up. Anyone who says no, doesn’t have a clue how this works.
Question: Is the Gov. or anyone around him buying? is he creating a market for his buddies? I mean its an artificial market created by panic. That could be consider market manipulation.
Comment by frustrated GOP Thursday, Jun 9, 16 @ 2:14 pm
Anonymous@1:53
=In my darkest moments I wonder if Rauner is running the state into the ground knowing there is money to be made in their purchase=
Why would that be in your darkest moments? I thought this was part of his game plan? Who wins with lower bond ratings/costs? Not the average Joe. But the investor types……..money to be made from misery.
Comment by AnonymousOne Thursday, Jun 9, 16 @ 2:15 pm
Needless to say, its complicated but as I understand it, the Puerto Rico legislation contains a Chapter 9 like process with a stay of litigation by all government bond holders who suffered a default and expressly gives priority to the payment of Puerto Rican government pensions and other non-bondholder creditors over the holders of Puerto Rico bonds.
Comment by In a Minute Thursday, Jun 9, 16 @ 2:15 pm
But it’s not…. passed.
Comment by Oswego Willy Thursday, Jun 9, 16 @ 2:17 pm
I would add that if the state can’t pay I have some state highway corners I would like in leu of the bonds and payment. I am sure the toll booth will make up the loss in less then a year. I would be willing to pay tollway a management fee as a % of the take. Or is that a skim?
Comment by frustrated GOP Thursday, Jun 9, 16 @ 2:17 pm
I said yes.
I would buy a bond, for the same reason I would buy a pension - if you could. The constitution.
Comment by A Modest Proposal Thursday, Jun 9, 16 @ 2:18 pm
With Rauner and his wing person runnin’ up the rates, I would invest in it. That is if I had any money left to invest after paying the doctor and dentist still waitin’ to get paid by the state.
Comment by DuPage Thursday, Jun 9, 16 @ 2:29 pm
Yes. They pay federally tax free interest. I pay much more in federal taxes than the tiny state income tax that so many cry about.
Comment by A Jack Thursday, Jun 9, 16 @ 2:32 pm
Yes. The Governor is ensuring rates are high. And President Cullerton will ensure the bonds are paid.
Comment by Keyrock Thursday, Jun 9, 16 @ 2:32 pm
Yes would buy a bond. The risk default is very limited, illinois state has sovereignty taxing power to pay its debts. If other taxing districts are in distress they can legislate those district go bankrupt pay those debts and ensure the illinois tax increase are the priority. Rauner will eventually be forced into a huge tax increase with some nominal “reform.” I expect Trump wipe out will ruin the GOP, tighten Madigan’s grip over the state. I would hate to be a illinois taypaper but would jump at the chance to buy illinois bonds.
Comment by atsuishin Thursday, Jun 9, 16 @ 2:36 pm
I voted “No.” I see no resolution in the near future to the Illinois’ state and local government fiscal distress. Accordingly, downgrades will continue and yield will rise as bond prices drop.
I may look at select Illinois paper in a year or so if prices bottom and yields peak.
Comment by Cook County Commoner Thursday, Jun 9, 16 @ 2:43 pm
Follow the money… Higher interest returns mean more money for investors like Bruce Rauner and Kenneth Griffin.
Comment by Say It Ain't So!!! Thursday, Jun 9, 16 @ 2:44 pm
General revenue bonds from a state are incredibly safe. If I had hundreds of thousands of dollars to throw into the bond market, I’d throw it into Illinois where I would have the highest rate of return.
Even if the state defaulted, there’s still certainty of getting paid.
Comment by Anon Thursday, Jun 9, 16 @ 2:51 pm
Absolutely! That state is going to be good for the money and you’ll make more denaro in the long run.
Comment by The Muse Thursday, Jun 9, 16 @ 2:57 pm
Investing even one penny in Illinois is foolish when there are plenty of other places to invest.
Comment by Jilly Thursday, Jun 9, 16 @ 2:58 pm
Yes. Legally paid first in a crisis. As safe as you’ll find.
Comment by Anonymous Thursday, Jun 9, 16 @ 3:29 pm
Yes. The State has no mechanism for bankruptcy on this debt and the bonds are on the top of the legal waterfall of payment. You will be paid and you’ll get a nice spread on top of other similar debt.
Comment by Former Bartender Thursday, Jun 9, 16 @ 3:44 pm
Absolutely. And as the ratings go down, the interest rates will go up. Buy, buy, buy. Thanks, Governor “Winnin”"
Comment by Diogenes in DuPage Thursday, Jun 9, 16 @ 3:55 pm
Yes. The bonds will be paid even if payments to all social service providers go unpaid. Bond holders have a sure thing, others who count on the state do not.
Comment by Hit or Miss Thursday, Jun 9, 16 @ 4:35 pm
I work for a place that’s named for a couple who gave this university enough money it named this place after them. They made their money buying up things people had for sale in the Great Depression. A building here, a company there, all sold for far less than their eventual worth. So yeah, state bonds seem to me to be a pretty good investment right now.
Comment by Cheryl44 Thursday, Jun 9, 16 @ 5:16 pm
US House Passes Puerto Rico Bill…
We’ll see how it goes in the US Senate…
Comment by Oswego Willy Thursday, Jun 9, 16 @ 5:34 pm
Munger trying to be too slick, but was called out on it, then had to walk it back. She’s trying to cloak her loyalties to the Governor, and I don’t like the look. As far as buying the bonds, that’s a no brainer–for the right interest rate to compensate you for the risk, yes. That’s why they will fly off the shelf.
Comment by Molly Maguire Thursday, Jun 9, 16 @ 5:50 pm
Illinois bonds have a good return on investment.
Bond holders and state pensions are paid before others.
States can’t declare bankruptcy.
Comment by Enviro Thursday, Jun 9, 16 @ 6:49 pm
The glare on the poster looks like “Illinois budget not line”. What fun call “br 555 ask me” sound like afscme (clever) is this the number to report corruption?
Comment by Rabid Thursday, Jun 9, 16 @ 7:02 pm
This is one of the best investments with its relatively high yield. Especially if one is in a high tax bracket since the income is federal income tax free. I should qualify as there are other factors that might be affected if one also gets social security for instance, where the muni income counts in the formula causing higher taxes. Only state to default on a bond was Arkansas during the great depression.
Comment by lost in the weeds Thursday, Jun 9, 16 @ 7:45 pm
I voted “yes”, but wouldn’t bet the farm on one. It’s not as solid as purchasing a U.S. Treasury, since the state can’t print its own money, a court may step in when we get to SHTF territory, and I’m not convinced Congress wouldn’t prefer to allow state bankruptcies vs. bailing one out.
But, all in all, I agree with most of the posters here, it is a very safe investment.
Which begs the question, why exactly is there such a high premium on GO bonds, if they’re so safe? If we only had a Governor with a business background, I would think he’d find a way for the state to peddle its bonds itself, and price them with an attractive-but-much-smaller-than-current premium, and test the market, much the same way the U.S Treasury does with savings bonds. If they fly, then create a plan to refinance ALL state debt with GO’s in this historically-low rate environment, and save the state a whole bunch of scratch in the process. If that’s illegal, then change the law. Can’t our leaders at least agree on reducing the spread of our debt? Or is that too simplistic?
Comment by Tom K. Thursday, Jun 9, 16 @ 9:05 pm