Illinois bond prices have dropped as Gov. Bruce Rauner and lawmakers remain locked in two-year stalemate over the government's budget, increasing the chance that it may become the first U.S. state ever cut to junk.

 

Illinois's 10-year bond yields, which move in the opposite direction as price, have soared to about 5.2 percent, or 3.36 percentage points more than top-rated municipal debt, according to Bloomberg's indexes. Securities due in 2023, the most actively traded Friday, sold for an average yield of 4.3 percent, a nearly half percentage point jump since May 31, the day before S&P Global Ratings and Moody's Investors Service downgraded Illinois to the lowest investment grade.

 

The downgrades came after state leaders failed for the third year in a row to approve a spending plan during the regular legislative session, forcing lawmakers to secure a three-fifths majority of the legislature to pass a budget before the start of the next fiscal year on July 1. If they can't, S&P warned that it will likely cut Illinois's credit rating again.

 

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