The cost of insuring Illinois' bonds against default rose to the highest level in five months as the state headed for the new year without a plan to finance a $3.7 billion pension fund contribution.
The cost of credit-default swap insurance on Illinois, the lowest-rated state after California, has risen 16% to $330,000 to protect $10 million of debt, from $285,000 on Dec. 3, according to data compiled by Bloomberg. That's the most expensive since July 12, when it reached $335,000.
“They're punishing all the states, but they're punishing the worst states more,” said Alan Schankel, director of fixed-income research for Janney Montgomery Scott. “Illinois has been worse for a while.”
Insuring Illinois against default now costs more than that for California, where the cost of covering general obligation debt averaged $291,000 in December, Bloomberg data show. S&P ranks California at A-, its fourth-lowest investment grade, and Illinois at A+, two levels higher.
The budget Illinois lawmakers passed earlier this year has a $13 billion gap, half of total spending. The state had to sell securities backed by its share of a settlement with tobacco companies to help pay $2 billion of bills left over from fiscal 2010.
Illinois sold $3.47 billion of pension bonds in the first week of 2010 at as much as 4.421% on debt that matures in one to five years. The top rate was 182 basis points, or 1.82 percentage points, higher than the yield on five-year U.S. Treasuries, according to Bloomberg data.
Illinois was planning a sale of $3.7 billion for its fiscal 2011 pension contribution until lawmakers refused to approve it when they met to wrap up legislation after the November election. The plan may still be considered when lawmakers meet again starting next week. Kelly Kraft, spokeswoman for Gov. Pat Quinn's Office of Management and Budget, didn't immediately respond to two e-mails.