* 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.