Illinois bonds rallied to a three-week high as the state’s leaders moved toward temporarily halting a record yearlong budget impasse and avoiding a massive shutdown of government services.
Taxable pension bonds maturing in June 2033, the state’s most actively traded debt, sold for an average of 95.1 cents on the dollar, according to data compiled by Bloomberg. That pushed the yield down to 5.55 percent, about 3.7 percentage points more than benchmark debt.
With the fiscal year about to end, the House and Senate are expected to vote on a plan that would fund the government for the next six months based on a compromise reached by Republican Governor Bruce Rauner and top legislative leaders.
“It’s clearly a temporary positive for bondholders,” said Adam Buchanan, senior vice president of sales and trading at Ziegler, a broker-dealer in Chicago. “Everybody wants a long-term solution. We just haven’t gotten there yet.”
The stopgap budget, if approved by lawmakers, would provide a temporary reprieve for Illinois, which is facing shuttered essential services, a halt to road construction, and the delayed opening of schools. Stuck in gridlock for the last 12 months, Illinois’s backlog of unpaid bills has soared to $7.8 billion. Even if the fix is approved, the state still lacks a full-year spending plan, and the consequences of the yearlong impasse have already wreaked havoc on its finances.
This month Moody’s Investors Service and S&P Global Ratings downgraded Illinois to the lowest level for a state in over a decade, and investors are still demanding the highest spread from Illinois out of all 20 states tracked by Bloomberg. The state’s 10-year bonds yield 3.2 percent, or 1.9 percentage points above benchmark, according to data compiled by Bloomberg.