Illinois Muni-Debt Penalty Shrinks as ‘Unexciting’ Budget Passes

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(Bloomberg) -- Illinois is closing the gap with its peers in the municipal-bond market as investors herald the passing of an on-time budget and a broad...

-- Illinois is closing the gap with its peers in the municipal-bond market as investors herald the passing of an on-time budget and a broad improvement in the state’s fiscal standing.The extra yield that investors demand on Illinois debt shrank on Wednesday toward the lowest levels of 2024 as lawmakers approved a $53 billion budget for the year starting July 1, a sign pressure is easing on the US state with the weakest credit rating.

Illinois’ spread above AAA 10-year municipal bonds has shrunk to under 62 basis points, down from 95 in January and more than 440 basis points in 2020, data compiled by Bloomberg show. Yet it still pays the highest penalty among peers to borrow in the muni market. Its spread is more than double that of New Jersey, which has the second-lowest rating among US states.

Canada's Finance Minister Chrystia Freeland said on Tuesday that the federal budget presented to the Parliament last month had created conditions for interest rates to come down. The government has "been very mindful of acting in such a way that would create conditions that support the decline in inflation, or creating conditions that would make it possible for the bank to bring interest rates down," she told reporters at a conference in Ottawa.

 

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