Illinois Yields Approach Junk as 2014 Rally Falters

Businessweek reports:

Illinois is back in the doghouse among investors in the $3.7 trillion municipal-bond market.

The extra yield investors demand to own 10-year Illinois bonds rather than AAA munis has surged 0.55 percentage point since May to 1.64 percentage points, data compiled by Bloomberg show. The gap grew after lawmakers on May 31 passed a budget with a $2 billion hole. Then last month, the state Supreme Court ruled that government retirees’ health-insurance premiums were shielded from cuts, and Standard & Poor’s changed its outlook on Illinois to negative.

Though Illinois is rated six steps below AAA, it trades at near-junk yield levels. That’s still not attractive enough for James Dearborn at Columbia Management Investment Advisers and Patrick Morrissey at Great Lakes Advisors. A potential political shakeup from gubernatorial elections in November, considered a toss-up, and questions over the constitutionality of the state’s pension overhaul have bond buyers betting prices will keep falling.

The great moments of Blue America.