The Cost of Insuring Illinois Debt Against Default Now Costs More Than That of California

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 CDS (credit-default swap) insurance on the lowest- rated state after California has risen 16 percent 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.

Insuring Illinois against default now costs more than that for California, the lowest-rated U.S. state according to Standard & Poor’s. Covering the most-populous state’s 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. 

State and municipal issuers have been seeing costs for their credit default swaps widen since banking analyst Meredith Whitney on Dec. 19 predicted “hundreds of billions of dollars” of municipal defaults during an episode of CBS Corp.’s “60 Minutes,” Schankel said. Those states in worse financial shape have seen their costs rise more, he said. 

Read more at:  http://www.bloomberg.com/news/2010-12-28/illinois-default-insurance-cost-rises-as-weak-states-punished-muni-credit.html