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Near-Junk Illinois Faces Record Bond Penalties on Financial Risk

  • 10-year spread over AAA rated debt rises to 34O basis points
  • Higher debt costs mean ‘budget balancing harder’: Fabian
Illinois State Capitol Building
Photographer: fotoguy22/iStockphoto

The extra yield that investors are demanding to own Illinois bonds has surged to a record high, surpassing even the levels hit three years ago when it was on the verge of seeing its rating cut to junk, as the coronavirus threatens to deal a devastating blow to its precarious finances.

The yield on the state’s 10-year debt has climbed to about 340 basis points above the top-rated benchmark, according to Bloomberg’s indexes, which were started in 2013. That’s above the previous record in June 2017, during the height of a protracted two-year budget impasse that left the government contending with a swelling backlog of unpaid bills and threatened to turn it into the first state to be stripped of an investment-grade credit rating.