The impact led other Illinois pensions to pare their expectations. In July, the trustees for the judges’ retirement system lowered their return assumption to 6.75 percent from 7 percent. That same month, the board for the state employees’ system cut its estimate to 7 percent from 7.25 percent, according to member newsletters.
It’s “difficult or near impossible” for entities like pensions to meet current liabilities with these zero or near zero percent yields, Bill Gross, billionaire manager of the Janus Global Unconstrained Bond Fund, said on CNBC on Aug. 31. He said Illinois will “ultimately” have to raise taxes.
The yields on Illinois debt are the highest among states tracked by Bloomberg. The difference between Illinois’s 30-year bonds and top-rated securities widened to 1.7 percentage points on Sept. 2, a three-week high, according to data compiled by Bloomberg.
“It’s still tough to see how the state is going to be able to devote the resources that are necessary to get them where they need to be,” said Tom Schuette co-head of investment research and strategy at Solana Beach, California-based Gurtin Municipal Bond Management, which doesn’t hold Illinois debt among its $10.6 billion of state and local debt. “There’s so much uncertainty.”
This article was provided by Bloomberg News.