Inquiring minds are looking at Investment News Daily where they report in “The State Most Likely to…” that swaps predict that California will not be the first state to default. The cost of insuring Illinois’s bonds against default rose to the highest level in five months:
The cost of 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.
“They’re punishing all the states but they’re punishing the worst states more,” said Alan Schankel, director of fixed- income research for Janney Montgomery Scott LLC, a money- management firm based in Philadelphia. “Illinois has been worse for a while.”
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.
The best analogy for this scenario (especially since we are in the middle of the Bowl season) is college football. How many times have you seen a higher ranked team be an underdog with regard the betting line? The rankings are for show, the money knows.
Please click on the link above to read the entire article. There is much more must-read infromation.
Tip of the Hat to Dan
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