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* Hannah Meisel at the Daily Line…
More than 64,000 Illinoisans filed unemployment benefit claims with the Illinois Department of Employment Security between Monday and Wednesday as the initial damage caused by the spread of the Coronavirus on the state’s economy emerged.
* Lynne Funk at the Bond Buyer…
The municipal market was imploding in real time as it sold off by at least half a percentage point across the curve and Lipper reported more than $12 billion of outflows — simply more sellers than buyers amid a chaotic reaction to the COVID-19 virus.
The municipal market also completely decoupled from U.S. Treasuries in a major sell off that had the one-year muni yielding well over 2% on Thursday as the rest of the curve was up by more than 50 basis points across AAA benchmarks.
One-year munis currently yield more than 30-year U.S. Treasuries, which landed at 1.77%.
This sell off is fund outflow-driven and there were massive bid lists out on Thursday morning and the relative ratios of municipals to corporates and Treasuries are historic.
Lipper reported a whopping $12.214 billion of outflows from municipal bond funds. Out of that huge number, $5.3 billion of outflows were from high-yield bond funds. The $12 billion figure of outflows in one week equates to about 3% of annual municipal volume.
* Jason Grotto, Shruti Singh and Noah Buhayar at Bloomberg…
It’s a bitter irony: As state and local governments struggle to blunt the new coronavirus outbreak, the most effective weapons hammer their fiscal health.
Social distancing has already begun to crater their revenue, even as emergency expenses, pension costs and other long-term liabilities are poised to surge. The market has priced in the impact of the slump, leading to the worst muni-bond rout since 1984 and prompting desperate calls for federal support.
The U.S. government has begun sending billions to states to offset the cost of combating the virus, but additional pressures are likely to build in coming weeks and months as revenue declines, unemployment spikes and business activity slows. […]
Few states face a crisis as deep as Illinois, which has more than $7 billion in unpaid bills, about $137 billion in unfunded pension liabilities and only $1.2 million in reserves. Just over a week into the pandemic, initial jobless claims in Illinois jumped more than 10-fold compared with the same period last year. […]
“Illinois and Chicago were ill-positioned for a crisis before all this started,” said Laurence Msall, president of the Civic Federation, a Chicago-based independent, nonpartisan research organization. “The only way you can get out of this is a massive federal stimulus for state and local governments.”
* Brian Tumulty at the Bond Buyer…
Congress is considering authorizing the Federal Reserve to purchase municipal bonds as one of the ways to support local and state efforts to address the coronavirus pandemic.
A memo circulated Wednesday by House Financial Service Committee Chairwoman Maxine Waters, D-Calif., suggests that the next wave of federal legislation authorize the Fed to support state, territory, and local debt issuance in response to the coronavirus outbreak.
The Waters memo also suggests a blanket waiver for state or local governments to provide a local contribution as a requirement for receiving certain federal grants. […]
Americans for Financial Reform, a coalition of organized labor and liberal advocacy groups, has recommended that Congress mandate the Fed to purchase municipal debt to help state and local efforts to fight the epidemic and related economic fallout.
Marcus Stanley, policy director at Americans for Financial Reform, wrote in an op-ed for Bloomberg, pointing out that the Fed has used its authority in the past to help banks and even foreign governments.
The full memo is here.
*** UPDATE *** Good…
The Federal Reserve capped off an unprecedented week of action Friday by extending a lifeline to cash-strapped state and local governments that are about to borrow large sums as they deal with skyrocketing costs from coronavirus safety measures. […]
The Fed will make loans available to financial institutions that can be secured by “high quality” state and local bonds. This will make owning these tax-exempt municipal bonds more attractive and should help ensure there is plenty of demand for these bonds as many states and cities begin to issue more debt in the coming weeks and months.
posted by Rich Miller
Friday, Mar 20, 20 @ 9:13 am
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Yellen and Bernake want the Fed to start buying corporate debt as well. Something like 40% of companies were not profitable before the outbreak. How much debt can the federal government guarantee without huge consequences…? Apparently, we are going to find out.
Comment by Ducky LaMoore Friday, Mar 20, 20 @ 9:26 am
We are all modern monetary theorists now. The era of big government is back. Good for Fed it lets Gov Pritzger focus on saving lives. We are way ahead of other states.
The cause of the bond crash seems to be massive hedge fund liquidation due to the Russian Saudi oil war. Sovereign wealth funds are liquidating everything to cash only driving up the dollar.
That gives the Fed and Feds ability to spend everything they want …but it doesn’t give us a vaccine.
Comment by Not a Billionaire Friday, Mar 20, 20 @ 9:42 am
Agree, we need federal stimulus money for our pension funds and other needs. Corporations were making record profits/revenue already, the stock market was soaring and we handed them a tax cut worth billions of dollars. If we can give this lavishly to those who need it least, we easily ought to give to those who need it more.
Comment by Grandson of Man Friday, Mar 20, 20 @ 9:46 am
Laurence Msall is right, again, as he has been saying for years. But nothing will change and we’ll continue to lurch from crisis to crisis. Speaking of which, the political argument for the Fair Tax gets awfully hard to make in a recession. The rating agencies are going to have to deliver some very difficult messages in the coming months.
Comment by bailbond Friday, Mar 20, 20 @ 9:50 am
=== the political argument for the Fair Tax gets awfully hard to make in a recession.===
Quite the opposite, actually.
Healthcare is an incredibly easy way to measure the have and have nots… and voting to keep 97% of taxpayers at the same or lower and 3% seeing an increase, this crisis will crystallize what some will call a fairer way of taxing.
Comment by Oswego Willy Friday, Mar 20, 20 @ 9:57 am
If they do bail out large corporations like Airlines and casinos wouldn’t it only be fair to predicate that on that they pay their employees the wages lost.
Comment by Drake Mallard Friday, Mar 20, 20 @ 10:07 am
And this comes after the Fed Reserve and US Govt pumped monetary and fiscal stimulus throughout the eleven years of expansion, even well after the economy had recovered. It would have been great if they had kept more dry powder for economic shocks like this.
Comment by Independent Friday, Mar 20, 20 @ 10:09 am
They should let states go to the discount window.
Is Boring a member of Msalls group. They are asking for a bailout and having cut the dividend. They are the corporate equivalent of the kids at the beach.They make HVAC. No one is going to need planes for years. They need to make respirators.
Comment by Not a Billionaire Friday, Mar 20, 20 @ 10:10 am
The federal government did a phony stimulus with the recent tax cuts, which did not stimulate economic growth but instead greatly benefited those who need it the least. The economy was growing before the tax cuts, and job gains had been happening for years.
Comment by Grandson of Man Friday, Mar 20, 20 @ 10:17 am
===They should let states go to the discount window===
That was also suggested in 2008. Feds should’ve done it.
Comment by Rich Miller Friday, Mar 20, 20 @ 10:26 am
While not the discount window, the Fed just announced they would step in to buy short-term munis, one area that has faced particular disruption (although the Fed’s action will not directly benefit the City of Chicago or State of Illinois, since they don’t have short-term munis)
Comment by bailbond Friday, Mar 20, 20 @ 10:35 am
The Fed has lost sight of its mandate. Instead, they now do the bidding of the President trying to keep the stock market going higher. That caused a bubble that this virus popped. The Fed is supposed to act on interest rates to control unemployment and inflation not prop up the stock market.
Comment by "Old Timer Dem" Friday, Mar 20, 20 @ 10:44 am
Unless the state or municipality has a bond offering now or in the works, they do not need help. The Fed could buy new offerings, with the proviso that the paperwork be audited for criminal fraud.
Bond holders get paid to take risk. As we have discussed before, Illinois bond holders have very strong protection.
Comment by Last Bull Moose Friday, Mar 20, 20 @ 10:50 am
==we handed them a tax cut worth billions of dollars==
Which they turned around and used for stock buybacks (airlines most of all), maybe this will put to rest the concept of ‘trickle down’ once and for all.
Comment by Jocko Friday, Mar 20, 20 @ 10:54 am
==Something like 40% of companies were not profitable before the outbreak.==
==Corporations were making record profits/revenue already==
Which one is it?
Comment by City Zen Friday, Mar 20, 20 @ 10:54 am
@City Zen
Both. Many corporations were making record profits. At the same time, ultra-low interest rates kept nonprofitable companies afloat that would have otherwise been going through bankruptcy or sold off. Thus the huge selloff of junk bond and near junk assets.
Comment by Ducky LaMoore Friday, Mar 20, 20 @ 11:02 am
We all should be gratified that in the Country’s worst crisis since WW2- grandson is focused on HIS pension. Way to go mr selfless
Comment by Sue Friday, Mar 20, 20 @ 11:07 am
Sue, besides health being nearly everyone’s first concern, everybody is focused on money.
Comment by Ducky LaMoore Friday, Mar 20, 20 @ 11:10 am
Sue, didn’t you announce that you were leaving?
Comment by Rich Miller Friday, Mar 20, 20 @ 11:32 am
Rich — I’m making sure you’re aware of leadership by Treasurer Frerichs on this front.
https://drive.google.com/file/d/127uoKIwP9nJzLNWluCxJfROjq4thgElE/view?usp=sharing
Comment by Dave Wallack Friday, Mar 20, 20 @ 11:35 am
“grandson is focused on HIS pension”
Mr. Msall said it:
“The only way you can get out of this is a massive federal stimulus for state and local governments.”
Agree, because we’ve bailed out farmers due to an ill-advised trade war started by a president many farmers support, and again, because we are giving huge tax cuts to those who’ve done the best and need it the least.
Comment by Grandson of Man Friday, Mar 20, 20 @ 11:37 am
Sue, never missing an opportunity to take a cheap shot.
Crises reveal who people really are.
Comment by efudd Friday, Mar 20, 20 @ 11:44 am
===I directed my property manager to defer rents on 1200 student housing apartments I own. What have you and the rest of you been doing to make a difference.===
How many of “us” have… 1200… apartments… units to rent?
Are you going to measure people by your wealth scale?
I can see why you’re opposed to the progressive income tax.
I can see why too a pension for others is held in such distain by you too.
Comment by Oswego Willy Friday, Mar 20, 20 @ 11:53 am
It will be interesting to see how soon there will again be talk of cuts on state pensions.
Comment by OpentoDiscussion Friday, Mar 20, 20 @ 12:37 pm
=== talk of cuts===
The ILSC already spoke to it.
Comment by Oswego Willy Friday, Mar 20, 20 @ 12:41 pm
Very good news about the Fed financially assisting state and local governments.
Who are in the frontlines right now in this crisis? Essential workers, many of whom work for state and local governments and provide vital services. They should also get helped, along with everyone else.
Comment by Grandson of Man Friday, Mar 20, 20 @ 12:52 pm
The ILSC already spoke to it.
Hope you are correct, now and future courts as well.
However, this does not prevent politicians of ‘talking’ about it again. Just to muck things up.
Also, new employees could have another ‘Tier III pension.
Comment by OpentoDiscussion Friday, Mar 20, 20 @ 1:18 pm
A thought:
Whether than checks of $1,000 + being sent I would rather see that money used to back up unemployment funds throughout the nation. Being unemployed with little or no money is a disaster.
Wish our Congress would at least talk about this alternative
Comment by OpentoDiscussion Friday, Mar 20, 20 @ 1:20 pm
=== now and future courts as well.===
“That pesky constitution… “
===…not prevent politicians of ‘talking’ about it…===
Only a fool would decide right now to think about talking about pensions and the ridiculous choices that never include 71 and 36.
Comment by Oswego Willy Friday, Mar 20, 20 @ 1:27 pm
Oswego
You are disgracing yourself with your silly attacks.
Naturally you can not see this and will continue to post ‘willy, nilly.’
Comment by OpentoDiscussion Friday, Mar 20, 20 @ 1:39 pm
=== disgracing yourself===
Nah.
Show me a legislator right now that wants to talk pensions.
They can have that presser after the fair maps one…
Of course, the first one will be about the Stay in Place order by the Governor, and trying to get hospitals and equipment prepared for a pandemic… but those two following that, which legislator is going to follow the governor?
Comment by Oswego Willy Friday, Mar 20, 20 @ 1:45 pm