US state treasurers turn to foreign investors

When budget deficit issues in Illinois hit the headlines earlier this summer, you could almost sense a sigh of relief from California. Illinois has a deficit of $13 billion, compared with California’s $19 billion, but that is 2% of its GDP whereas California’s deficit is just 1%. In the CDS market, it is more expensive to insure against default for Illinois than California now.

Investors, however, seem undeterred, particularly those outside the US. Illinois’ $900 million Build America Bond (a tax-exempt municipal bond subsidized by the US government) issued in May was oversubscribed, and much of the interest was from foreign investors.