Muni Investors Celebrate "Juicy" 3.74% Yield On New Illinois Bonds As State Hurdles Toward Bankruptcy

Tyler Durden's picture

Muni investors seem to be absolutely elated today by the opportunity to scoop up their fair share of $4.5 billion worth of new Illinois bonds due in 2028 at a "juicy" yield of 3.74%...which makes a ton of sense if you can look beyond the fact that the state looks to be on an inevitable collision course with bankruptcy. 

Be that as it may, Wells Fargo Portfolio Manager Garbriel Diederich insists that the new issue "offers a tremendous amount of yield in a pretty yield-starved environment." Per Bloomberg

As the state marketed $4.5 billion of bonds Wednesday, securities due November 2028 are being offered at a preliminary yield of 3.74 percent, according to four people with knowledge of the pricing who requested anonymity because the yields aren’t final. That’s lower than the 3.78 percent yield for the November 2029 portion of last week’s $1.5 billion deal, even though bond prices have slid since then.


Investors said the yields are alluring, with benchmark 11-year tax-exempt debt paying about 2.1 percent.


"The issuer still offers a tremendous amount of yield in a pretty yield-starved environment,” said Gabriel Diederich, fixed income portfolio manager at Wells Fargo Asset Management, which holds $41 billion in municipal bonds, including those issued by Illinois. “Outside of this little supply hump here with this deal, there really hasn’t been much muni issuance before this or likely in the weeks ahead.”

Of course, just a few months ago in July, the state of Illinois narrowly avoided a junk bond rating with a last minute budget deal that included a 32% hike in income taxes.  Republican Governor Bruce Rauner vetoed the budget and called it a "disaster," but both houses of the state legislature voted to override his veto.  Meanwhile, S&P and Moody's were apparently both convinced that the budget deal was sufficient for the state to remain an investment grade credit and all lived happily ever after...

The deal comes after Illinois avoided becoming the first junk-rated state because lawmakers overrode Governor Bruce Rauner’s veto of tax hikes to end a two-year budget impasse in July. The proceeds from Wednesday’s deal, as well as the borrowing last week, will pay down $16.6 billion of unpaid bills that piled up during the budget stalemate.


“Clearly the passage of a budget, the performance of the revenue enhancements with the income-tax, paired with the ability to refinance high-cost payables at much lower levels, is positive for the state,” Diederich said. “But the need for expense and pension reform remains and will be a limiter on this name trading substantially tighter.”

...with bondholders expressing their approval via an insatiable demand for 18-year Illinois risk.

Of course, if all of Illinois' financial problems were solved via one simple tax hike, then someone is going to have to explain to us why the state's unpaid payables balance continues to balloon higher with each passing day and now stands at a record $16,559,494,396.60 according the comptroller's office... 

...which is only a 3-fold increase over the past two years.

Oh, and lets not forget that pesky little $130 billion pension underfunding that will rank pari passu with holders of Illinois' latest "juicy" bond offering when the state inevitably collapses at some point in the not so distant future...

IL Pension

But sure, 3.74% is a great yield relative to other muni issuers...

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NugginFuts's picture

3.74% yield with 0% ROI (return OF investment)?!?! How can I resist?!?!?!

Bigly's picture

I would not hold that shit for longer than 2 weeks.


Juicy my ass....

natxlaw's picture

I dunno, if you had a zero interest printing press and you could default on that loan, it would be a no brainer. They'll get some freshly printed Euros for their trouble. Maybe even some Yen and a Swiss Franc.

strannick's picture

3.74 % from a Bankrupt Govt run by Progressivist Democrats?, or silver.

Returnless risk? or millenia old money


Bastiat's picture

Yeah but those poor innocent investors ought to held harmless in bankrupcy and let the pensioners eat it, right?  Bullshit--haircut to fucking scalp.

Juggernaut x2's picture

Fuck all of 'em- No One Here Gets Out Alive

jcaz's picture

Not even if they were yielding 8.74%.......

YUNOSELL's picture

Anything to keep the bondzi scheme going.....


one falters and the whole house of cards comes down

Automatic Choke's picture

they ain't gonna pay back principle anyhow....why not offer 50% yield?


Bastiat's picture

Because you have to come up with the money to pay the interest.

Automatic Choke's picture

not if you default before the first coupon.   you gotta use your imagination to do govt finance...

Keyser's picture

This is much like investing in a building that is on fire... The promised yield is great, but the collateral will be a smoldering pile of ash when it comes time to collect the vig... 

Evan Wilson's picture


Anyone remember American Eagle Energy? Did a $175 million bond offering just before oil prices collasped. Company filed Chapter 11 before the first payment was due. In Chapter 11 everything only went for about $20 million, so the bonds recovered about 10% and everyone else got zero!


Evan Wilson's picture

I like your way of thinking.

I think you have a great future as a bond salesman with pitches like that you could get anyone that is broke to do a bond deal and collect the underwritting fees.

justin423's picture

Next up, Kansas, Kentucky and Oklahoma selling debt, which will get hammered in the next recession.

lester1's picture

What idiot would buy illinois bonds ??? They won't be paid back in full because of the mandatory payments the state has to make to pensions !!

natxlaw's picture

If you could print money into existence, lend it to yourself at negative interest rates, and default on it if you got tired of being paid to borrow, you might do it.

Bigly's picture

But I cannot print money, and neither can IL. That is reserved for the special ones.

1 Alabama's picture

have u talked to bill clintons financial advisor? his buddies r starved 4 yield

AlphaSeraph's picture

"Annnnd it's gone!!"

Zero_Ledge's picture

" Phase 1: Collect Underpants

  Phase 2: ??

  Phase 3: Profit ! "

Stan522's picture

Flush the toilet and take kalifornia with them.....

natxlaw's picture

How much is 3.74% Yield, when you get 0 because they default?

Grandad Grumps's picture

Yeah, the Feds have been sucking up all liquidity.

Paul Morphy's picture

Shouldn't your headline read "HURTLES towards bankruptcy" ?

saldulilem's picture

English has never been Tyler's strong suit

Automatic Choke's picture

thank you paul, and all the world's track and field athletes thank you as well.


Md4's picture

Seems mighty cheap considering it's Ellen Whah doing the borrowing.

Prolly shoulda tried to borrow enough to cover all those unpaid bills at 3.74%. Likely never get that again.

Next time, shark rates...

saldulilem's picture

I'd rather have a juicy prime rib

gregga777's picture

Why should Gabriel Diederich, fixed income portfolio manager at Wells Fargo Asset Management care? He's not stupid enough to be using his own money to buy Illinausea's bonds. It's other people's money that he's using to temporarily bail out Illinausea's political parasites.

Rex Andrus's picture

Jump you fuckers!

didthatreallyhappen's picture

and then sell the bond at 70.....................

mrdenis's picture

Can the coupons be stripped on them .....?

Automatic Choke's picture

what's to stop you?   you and i can trade the strips and zeros all we want provided we agree on terms....

Anon2017's picture

If the bond defaults, the bank will be sued by disgruntled investors and Mr. D. wil probably be out of a job. In any event, he shouldn't be talking to the press.  

I Art Laughing's picture

The parties almost over. Glad that Illinois is not the one I'll be taking home.

squid's picture

To all dumb fuck muni investors.....

You won't get your principle back guys. You won't because you are lending to a party that is:

1. Broke,

2. Getting broker everyday,

3. Has no plan on how to stop the bleeding,

4. The arithmetic doesn't work.


If you lend money to Illinois, you are insane. You won't get it back and don't come crying for a federal bailout.



I Art Laughing's picture

Yeah, imma go with Puerto Rico instead.

Muppet's picture

I dunno.  Consider Puerto Rico's experience... They too had juicy yields as they neared default but then what happened?   Shortly after becoming Speaker, Paul Ryan, led and passed a Bill that U.S. taxpayers will backstop and co-sign all Puerto Rico municipal debt.  This helped PR avoid being declared junk status.  At that time, Speaker Ryan emphasized that the Bill included appointment of a Blue-Ribbon panel of experts who would steer Puerto Rico away from default and therefore U.S. taxpayers had nothing to worry about.    Thus, all the buyers of juicy Puerto Rico yields had their ship come in.  They won the lotto.  

Now consider that Puerto Rico isn't even a U.S. State and Puerto Rico follows its own Constitution, not that of the U.S.

Thus IMO, jumping on these juicy yields makes good sense because U.S. taxpayers will certainly pay.   Just as U.S. taxpayers will pay to rebuild PR after IRMA.

This is a case of been there, done that.

Muppet's picture

Just FYI... these are not yet available via Fidelity Investments.  I looked.  Not yet under New Issues. 

bozoklown's picture

in 2009 The state of California issued IOU's in lieu of interest payment to bond holders. Those who do not remember history...

Silver Savior's picture

Long before 2028 the dollar will be worthless and before that the state will be bankrupt. What college educated jackasses are buying this shit?