Bad news not hurting Illinois bonds
Monday, Oct 29, 2012 - Posted by Rich Miller
* Bloomberg LP held a forum earlier this month on how scary it was to invest in Illinois bonds. But this was published today by Bloomberg’s news service…
Debt sold by Illinois issuers is rallying the most in 20 months in the face of a warning that the state’s pensions may run out of money and drain funding from education, infrastructure and local aid.
Investors seeking to enhance returns amid the lowest municipal interest rates in a generation shrank the extra yield on bonds of Illinois and its localities to 1.43 percentage points last week, the least since February 2011, data compiled by Bloomberg show.
Debt-holders in the lowest-rated U.S. state by Moody’s Investors Service are willing to take the risk because of their confidence in getting repaid. Illinois is one of seven states with the strongest legal provisions for paying debt service on its general obligations, according to Fidelity Investments. The yield spread relative to AAA tax-exempts is still the highest among 19 states tracked by Bloomberg. […]
Some investors still can’t get enough Illinois bonds “because they’re cheap, and the risk of non-payment is miniscule,” said Matt Fabian, a managing director at Concord, Massachusetts-based research firm Municipal Market Advisors.
The state has also had some cause for fiscal cheer. Its revenue has grown 2.9 percent in the fiscal year that started July 1, beating the state’s 1.8 percent estimate, according to MMA.
Discuss.
- Bill White - Monday, Oct 29, 12 @ 2:45 pm:
What are the arguments against taking advantage of these ultra low interest rates to refinance high interest Illinois debt with lower interest Illinois debt?
- PublicServant - Monday, Oct 29, 12 @ 2:50 pm:
You’re right Bill. Refinancing at ultra low interest rates, far from the mantra of “kicking the can down the road” is the prudent financial thing to do, but don’t expect the right wing zealots to agree with you.
- Downstater - Monday, Oct 29, 12 @ 3:28 pm:
Illinois bonds are cheap, therefore interest rate is high. Very low risk of default makes the bonds attractive, but the State of Illinois is paying much more costing the taxpayers millions of dollars.
- Shemp - Monday, Oct 29, 12 @ 3:32 pm:
Yay?
By all means, the State should be taking advantage of these rates whether it is paying old bills or refunding debt. HOWEVER, it shouldn’t be used for paying ongoing costs or as an excuse to stave off further spending cuts or tax increases. The majority party should be jumping on all of that right Nov 7th since they’ve failed to do so to this point.
Like the minority party in the state, I fear that too many legislators will see more bonds as a way to buy more time to not act. If there were firm commitments to act and a real, workable long-term plan, I’d say bond away.
- archimedes - Monday, Oct 29, 12 @ 3:32 pm:
Might recall that 1/4% of the increased income tax was to sell a $8.7 billion bond to pay off most of the State’s bill backlog. Would be cheaper than paying 1% per month to vendors, but R’s said no.
- western illinois - Monday, Oct 29, 12 @ 6:04 pm:
Extra protections for investors ….you mean like that constitutional gaurntee on pensions?
- steve schnorf - Tuesday, Oct 30, 12 @ 8:27 am:
Does anyone else read this to say that in their analysis they are grouping both state bonds and bonds of local governments? That sure seems weird to me.
- Waffle Fries - Tuesday, Oct 30, 12 @ 8:41 am:
I wonder how many of the anti-borrow crowd has refinanced their mortgages in the last 3 years to take advantage of lowered rates, because, you know, that makes financial sense….
We’d rather hang schools, health and human service providers out to dry and not pay them then borrow. Makes sense.
- WhyMe - Tuesday, Oct 30, 12 @ 8:45 am:
Everything is fine as long as the interest rates are low. We’ll worry about higher rates when they are higher. What could possibly go wrong?