Illinois Bonds Rally After Lawmakers Pass Pension Measure

Municipal bonds from Illinois rallied to a one-month high after lawmakers broke through decades of political gridlock to pass a measure addressing the nation’s worst-funded state pension system.

About $4.4 million of taxable Illinois general-obligation bonds maturing in March 2016 traded today at an average yield of 1.8 percent, the lowest since Nov. 8, data compiled by Bloomberg show. Yields move inversely to prices. The volume that changed hands was the highest since July.

In a span of six minutes yesterday, lawmakers broke through the political impasse that Democratic Governor Pat Quinn said in January “has confounded legislatures and governors for 70 years.” The state Senate and then the House approved a rescue of the state pension system, which faces a $100 billion shortfall.

While unions have promised a legal challenge, Quinn declared victory. The measure saves $160 billion over 30 years. The proposal agreed to by legislative leaders Nov. 27 was designed to limit annual cost-of-living allowances and raise the retirement age for some workers.

Illinois’s credit grade has been cut seven times since June 2010 by the three biggest rating companies after the state was unable to find a fix for the retirement systems. Lawmakers failed five times in the past 16 months before yesterday.

Smaller trades today included tax-exempt debt due in January 2027 that changed hands at a yield of 3.62 percent, down from 5.04 percent last week, Bloomberg data show.

Today’s most frequently traded Illinois securities are taxable pension bonds due in June 2033, according to data from the Municipal Securities Rulemaking Board. The debt traded today an an average yield of 5.9 percent, down from 6.01 percent yesterday.

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