July 11 Illinois' so-called credit spread for
long-dated debt narrowed on Thursday as U.S. municipal bond
prices rose and the market digested action by the state's
governor on Wednesday to cut off legislators' paychecks until
they enact comprehensive pension reform.
The yield spread for Illinois general obligation bonds over
Municipal Market Data's benchmark triple-A scale fell by 5 basis
points to 145 basis points for bonds due in 20 years, according
to MMD, a unit of Thomson Reuters.
For 30-year bonds, the spread narrowed by 10 basis points to
140 basis points.
Governor Pat Quinn used his line-item veto on Wednesday to
suspend salaries of state lawmakers, saying he was fed up with
legislative foot-dragging on Illinois' nearly $100 billion
unfunded public pension liability.
But some traders said the improvement in Illinois' spreads
was due more to Thursday's price rise in the $3.7 trillion
market, the first since July 3, than to Quinn's move.
"It's definitely nice to see but until we see anything
concrete (on pensions) it's not a huge difference," said Dan
Solender, head of municipal investments at Lord Abbett & Co.
The continued failure by the state legislature to enact
pension reform helped push Illinois' credit ratings to the
lowest level among U.S. states. Investors, meanwhile, have been
demanding hefty yields to buy the state's bonds.
In the secondary market on Thursday, prices on top-rated,
tax-free bonds, which have been sliding lower since July 5,
perked up after Federal Reserve Chairman Ben Bernanke's comments
late Wednesday that the central bank's accommodative monetary
policy was still needed, said Randy Smolik, an MMD analyst.
Yields on 10-year bonds dropped 8 basis points to 2.67
percent on MMD's scale, while 30-year yields fell 5 basis points
to 4.01 percent.