The state of Illinois had two milestone events recently. The legislature passed a long-awaited pension reform and the state treasurer issued $350 million of taxable general obligation (GO) bonds. The Bond Buyer reported on the GO offering:
The yields ranged from 0.75 percent on the short end to 5.65 percent on the long end. The two-year maturities priced at a yield of 1.28 percent, 95 basis points above a Treasury rate of .33 percent. The spread on the state’s final 2038 maturity was about 175 basis points more than the 30-year Treasury rate of 3.90 percent Thursday.
Thomson Reuters Municipal Market Monitor’s Dan Berger wrote in a December 10 commentary about Illinois GO bonds:
Hopefully, MMD clients have learned some lessons during the past few years. One of these lessons is that spreads are a leading indicator of credit.
(A3/A-/A-) State of Illinois General Obligation bonds are a perfect example of this phenomenon. Last week the Illinois legislature passed a bill designed to alleviate the ‘Prairie State’s’ pension liabilities which are estimated to be $100bln. Reuters reports this bill as a ‘landmark.’