Bloomberg (the news, not the mayor) reports that the state of Illinois must pay 40 percent more than it did two months ago to borrow money in the bond markets (relative to supposedly risk-free Treasury bonds).
Illinois’ new 25-year, $300 million, taxable Build America bond issuance was priced to yield investors a whopping 7.1 percent yesterday.
Moody’s rates Illinois at A1 — showing once again that ratings are out of sync with markets.
To get a similar taxable yield on a corporate bond, you’d have to go into lower-rated territory. For example, you could buy a bond of similar maturity — actually one year longer — in Anadarko Petroleum (rated Baa3), one of BP’s Deepwater Horizon partners in the Gulf mess, for a taxable yield of nearly 7.3 percent.
If you don’t like Anadarko, you could buy bonds in second-tier brokerage house Jeffries (rated Baa2), also maturing in 2036, for 7.1 percent. And similar-maturity bonds in the Hartford Financial Services Group insurer (rated Baa3) will yield you 7.1 percent (if all goes well from now ’till then).
It is highly unlikely that the U.S. government would let Illinois fail. But markets could force the feds to prove it, just as they made Germany prove it about Greece.
[h/t Business Insider for the Illinois info]
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