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* UPDATED x2 * I think this is good news?

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* I love the Bond Buyer. I just don’t always fully understand it…

Illinois came to market Tuesday, earlier than expected, with yields lowered by as much as 25 basis points from price talk Monday, as investor demand for high-yield paper welcomed the lowest-rated U.S. state. New deals from Oregon also re-priced to lower yields and New York State sold tax-exempt and taxable general obligation bonds in the competitive market to strong demand.

Triple-A benchmarks were little changed in mixed trading as the primary did the talking. U.S. Treasuries rose ahead of the Federal Reserve’s FOMC meeting conclusion Wednesday while equities lost ground.

Investors sitting on the sidelines in the secondary since Friday got a sense of what the primary had to offer and new deals were easily digested and underwriters bumped levels with the state of New York selling exempts through triple-A levels.

A repricing of Illinois general obligation bonds saw bonds bumped by 12 to 20 basis points from preliminary pricing wires Tuesday and 17 to 25 basis points from Monday’s price talk.

Morgan Stanley & Co. priced $1.25 billion of general obligation bonds for the State of Illinois (Baa3/BBB-/BBB-/). Bonds in 2022 with a 5% coupon at 0.69% (~63 basis points above triple-A benchmarks), 5s of 2026 at 1.51% (+108), 5s of 2031 at 2.22% (+102), 5s of 2036 at 2.47% (+119), 4s of 2041 at 2.81% (+132), 5s of 2046 at 2.75% (a 25 bps bump from Monday and about +111 bps). The second two series, $150 million priced with 5% coupons in 2022 to yield 0.69%, 1.51% in 2025, and 1.70% in 2031. The $258 million priced with 4% coupons in 2022 at 0.69%, 2025 at 1.30% and 2031 at 2.22%.

Maybe Google Translate needs to add a Bond Buyer function. Any help?

*** UPDATE 1 *** OK, this helps. Paul Chatalas, Director of Capital Markets, State of Illinois…

“The State received such strong demand and investor confidence that the bond sale was accelerated. Illinois received very impressive results, including more than 700 orders from more than 130 different investors, including respected names that have not invested in the State for a decade. This led to a contraction of credit spreads to 115 basis points over the benchmark in the longest maturity, the lowest in several years. Investors recognize the State is emerging from a period of unprecedented turbulence due to a global pandemic, and the bond market recognizes the fundamental security of the State’s bonds. The State appreciates the heavy subscription from long-time holders of its bonds, and welcomes the new investors that Illinois is seeing.”

Background…

Today the State of Illinois sold three series of tax-exempt General Obligation Bonds totaling $1.25 billion, to provide funding for capital projects, including projects authorized under the Rebuild Illinois capital program, for accelerated pension payments pursuant to the state’s ongoing pension buyout program and for refunding.

The Rebuild Illinois capital program, enacted in 2019, is the largest infrastructure program in the State’s history and the first in nearly a decade. The historic Rebuild Illinois capital plan passed with bipartisan supermajorities to improve the State’s infrastructure and improve economic development. The plan will invest $45 billion in roads, bridges, railways, universities, state facilities and other projects, creating and supporting an estimated 540,000 jobs over the life of the plan and revitalizing local economies across the state.

The pension benefit acceleration program allows program participants to receive an accelerated lump-sum payment in lieu of the right to receive future pension payments. With today’s issuance of $100 million, a total of $750 million of the authorized total of $1 billion pension acceleration bonds will have been issued.

The $850 million tax-exempt Series of March 2021A Bonds mature in 2022 through 2046 and funds capital projects and the pension acceleration program.

The $150 million tax-exempt Series of March 2021B Bonds mature in 2022 through 2031 and fund IT projects, which by statute may not have bond maturities that exceed 10 years.
The $250 million tax-exempt Series of March 2021C Bonds mature in 2022 through 2031 and are refunding bonds expected to save the State of Illinois $21.8 million, or 8 percent savings on a present value basis.
The G.O. Bonds were offered in three separate series in a negotiated sale, with an aggregate true interest cost of 2.90 percent. The bonds are being issued as fully exempt from federal taxation and are rated “BBB-” negative outlook by Fitch Ratings, “Baa3” negative outlook by Moody’s Investors Service and “BBB-” stable outlook by S&P Global Ratings.

The bond financing was led by Morgan Stanley & Co. LLC, with Co-Senior Managers Cabrera Capital Markets LLC, J.P. Morgan, Siebert Williams Shank & Co., LLC, and Stifel. Co-Managers were Blaylock Van LLC, Mischler Financial Group Inc., North South Capital, Podesta & Co. and Rice Financial Products Company.

*** UPDATE 2 *** From our favorite Bond Buyer reporter…

i know, still too much jargon….translation: Illinois did very very nicely cause market hungry for any bonds that offer a higher interest & at same time market no long worried in near term about cut to junk with improving taxes and fed windfall.

— yvette.shields@arizent.com (@Yvette_BB) March 17, 2021

Tuesday's results set a low for spreads not seen since 2014 before Illinois' two-year budget impasse that began in 2015 during then Republican Gov. Bruce Rauner clashed with the legislature’s Democratic majority. #municipalbonds @Yvette_BB https://t.co/frhk1xx8ON

— The Bond Buyer (@TheBondBuyer) March 17, 2021

posted by Rich Miller
Wednesday, Mar 17, 21 @ 5:12 am

Comments

I’m just really glad Illinois is making good use of coupons. That’s the kind of thrift we need.

Comment by Montrose Wednesday, Mar 17, 21 @ 6:33 am
Where do you get these coupons? Home and Garden magazine?

Comment by 17% Solution Wednesday, Mar 17, 21 @ 6:49 am
==Where do you get these coupons? Home and Garden magazine?==

Maybe they’re Digital Coupons like many stores and companies now have. Especially with Sunday paper coupon inserts, while still around, not as huge as they used to be in the pre-digital era.

Comment by EssentialStateEmployeeFromChatham Wednesday, Mar 17, 21 @ 8:16 am
Can this be explained like it is at the bottom of your JC Penney or Kohls receipt?

You’ve saved $1.2 billion today by shopping with us…

Comment by Cool Papa Bell Wednesday, Mar 17, 21 @ 8:23 am
[Sound of an adult talking in Peanuts]

Comment by Skeptic Wednesday, Mar 17, 21 @ 8:34 am
I find the bond buying thing fascinating.

Unfortunately, I’m as lost as an Easter Egg on the details.

Comment by Flyin' Elvis'-Utah Chapter Wednesday, Mar 17, 21 @ 8:48 am
What is says is: Investors are desperate for anything considered “relatively safe” that offers some pretense of a return. They are even willing to buy Illinois debt. LOL

Comment by Pretense Four Wednesday, Mar 17, 21 @ 9:08 am
Rich, it’s O.K.; it’s plus good, doubleplusgood! (Eurythmics, 1984)
Slightly more seriously, it appears Illinois bonds were actually rated or sold higher than initially projected. As to Skeptic’s comment about “talking in Peanuts”, did you mean the adults or Woodstock?

Comment by thisjustinagain Wednesday, Mar 17, 21 @ 9:29 am
To give everyone an idea of how the two Georgia Senate seats have impacted the municipal market.

Mayor Emanuel sold LT Chicago Public School bonds 580 basis points above the muni benchmark yields. Today, LT Illinois GO bonds trade about 125 basis points above the benchmark.

Not directly comparable, but still.

Upshot? The working and middle-class in IL should be pleased that no tax hikes are necessary due to (i) federal government aid and (ii) a Treasury market with historically low yields.

Comment by Julian Perez Wednesday, Mar 17, 21 @ 9:41 am
Coming in 25 basis points below expectations is moving in a good direction. The spreads above AAA-rated are enough to say we are not in a good place, but improving. Also, they note the spreads are the lowest since 2014, so also moving in a good direction https://twitter.com/TheBondBuyer/status/1372188668211908608

Comment by Blake Wednesday, Mar 17, 21 @ 9:58 am
This is like watching an episode of “Billions” on Showtime. Not sure exactly what they’re talking about and don’t always follow what’s happening, but it sounds interesting.

Comment by anonamoose Wednesday, Mar 17, 21 @ 10:01 am
The racket of looking at debt, and how the constitution and the requirements, Illinois is always a good bet and buy.

The real magic trick is still pretending there are real concerns while ignoring the constitutional realities of how Illinois looks at that debt… and saying there’s “flexibility” to the safety.

Comment by Oswego Willy Wednesday, Mar 17, 21 @ 10:09 am
Illinois still priced higher than other states but not as high as expected. There. Fixed it for you.

Comment by Chicago Cynic Wednesday, Mar 17, 21 @ 10:29 am
Not just not as high as expected, but Bond Buyer also states, though not in the clip Rich picked, the spread between Illinois bonds & the AAA-rated bonds are at the lowest since 2014.

Comment by Blake Wednesday, Mar 17, 21 @ 10:31 am
“The state received such strong demand and investor confidence”

“Mr. Dabrowski, Greg Bishop crying on line 1.”

Comment by Flyin' Elvis'-Utah Chapter Wednesday, Mar 17, 21 @ 10:44 am
“Illinois still priced higher than other states but not as high as expected.” If the price is low (which makes the yield high) then the investor is trading the higher yield for added risk. So the fact that the price of Illinois bonds was high (which makes the yield low) suggests that the investor has confidence about what backs the bonds.

Comment by Skeptic Wednesday, Mar 17, 21 @ 10:48 am
===Upshot? The working and middle-class in IL should be pleased that no tax hikes are necessary due to (i) federal government aid and (ii) a Treasury market with historically low yields.===

Not quite out of the woods yet, but every little bit helps. They should use low interest bonds to replace high interest bonds everywhere they can.

Comment by DuPage Wednesday, Mar 17, 21 @ 10:50 am
=== suggests that the investor has confidence about what backs the bonds===

Exactly, and it begins and ends with the constitutional aspect of that debt.

- Wordslinger - always explained the racket best, and why the demand was high.

Am I happy? Yeah. Great news, Rich, thanks for the update for clarity.

Comment by Oswego Willy Wednesday, Mar 17, 21 @ 10:50 am
Even though Democrats are making this a lot better, it is still ridiculous that when commercial banks want money to lend out to businesses, they get it for free from the Federal Reserve and when governments want money, they have to pay a lot more interest on it and give rich investors part of it.

Comment by Dan Johnson Wednesday, Mar 17, 21 @ 11:02 am
=- Wordslinger - always explained the racket best, and why the demand was high.+

Yep, he knew how the grift worked.

Illinois GO bonds are always in demand because they are sold at High risk yields for no risk bonds. If you are a bond investor, Illinois GO bonds are the like finding a unicorn.

Comment by JS Mill Wednesday, Mar 17, 21 @ 11:06 am
@JS Mill, absolutely true.

There’s a lot of demand out there from $$ seeking low-risk investments - high demand pushed down the spread to Illinois’ benefit.

Also:
1) Investors look pragmatically at IL, which remains a powerhouse producer of financial services with a huge agricultural sector and continued production of goods.
2) There’s relative political calm at the level of state governance, in combination with
3) A governor who, despite missteps in his first 2 years, is eminently sane and has rational plans for the state going forward
4) Investors look beyond S&P and Moody’s.

Comment by dbk Wednesday, Mar 17, 21 @ 12:13 pm
In other words, Rauner and the IPI failed in their mission to drive Illinois bonds to junk bond ratings and cause Illinois to become insolvent through the high cost of borrowing.

Comment by A Jack Wednesday, Mar 17, 21 @ 12:25 pm
Flyin’ Elvis’-Utah Chapter for the win!

Comment by Anyone Remember Wednesday, Mar 17, 21 @ 12:28 pm
Morgan Stanley completely missed the preliminary pricing on this deal. They will get a pass as always but more aggressive up front would have helped the State get even lower yields.

Comment by Former Bartender Wednesday, Mar 17, 21 @ 1:04 pm
Point of Information re Illinois credit rating

A credit rating is a judgment of the relative risk involved in lending money, i.e., how likely is it that the loan will be repaid? Thus, a lower credit rating suggests the borrower is less likely to repay the loan than a borrower with a higher credit rating. Illinois has the lowest credit rating of the 50 states, so in the judgment of the rating agencies, Illinois is more likely to default on its bond obligations than any other state. History, however, does not suggest Illinois– a sovereign entity with broad revenue-raising power– is a poor credit risk. A brief review:

Illinois partially defaulted on $13.5 million in bonds, mostly for I&M Canal construction, in January, 1842. At his December, 1842, inauguration, Gov. Thomas Ford pledged that the state would make good on its debt, and after convincing the General Assembly to levy a state property tax (10 cents for every $100 of equalized assessed valuation) for that purpose, bondholders were repaid in full by summer, 1846. Source: Howard, Robert P. “Mostly Good and Competent Men,” pp. 82-84.

Illinois has not missed a bond payment in the ensuing 179 years.

Charlie Wheeler

Comment by Charlie Wheeler Wednesday, Mar 17, 21 @ 1:12 pm
“Illinois GO bonds are always in demand because . . .” and they’re tax-exempt.

Comment by Skeptic Wednesday, Mar 17, 21 @ 1:34 pm
“Illinois has not missed a bond payment in the ensuing 179 years.”

And it’s not going to start now. I’ve been buying IL bonds because their tax-exempt yields are much higher than most everything else out there and I don’t believe we’re going to default. I do believe the ratings agencies are too conservative in their approach.

Comment by Chicago Cynic Wednesday, Mar 17, 21 @ 2:36 pm
Everybody but the rating agencies knows these bonds are extremely low risk, and therefore there is relatively high market demand. One of the few arenas where a bureaucratic process trumps the real market demand in setting prices.
Eventually the agencies and buyers will adjust to reality, after overreactions to 2008-era misjudgments fades away.

Comment by walker Wednesday, Mar 17, 21 @ 4:27 pm