Bernardi Study Highlights “Illinois Effect” on Local Municipal Bonds

Yield Penalties & Investment Opportunities Analyzed

CHICAGO, June 12, 2014 – Bernardi Securities, Inc. published a paper titled the “Illinois Effect” on Local Municipal Bonds. The analysis explores the increased borrowing cost paid by a municipality with solid credit metrics located in Illinois and the investment opportunities created by these bond market inefficiencies.

“Illinois’ fiscal problems at the state level are well known. What’s less well known is how this affects Illinois’ municipalities and the cost of infrastructure citizens depend on every day,” said Ronald Bernardi, President of Bernardi Securities, Inc. “Through independent municipal credit research, investors can identify market opportunities to help creditworthy Illinois municipalities fund public purpose infrastructure projects.”

Local governments with good credit metrics that are not overly dependent on the State for funding often pay higher yields on their bonds than similar municipalities in other states. The Bernardi report, distributed to clients on Tuesday, features a credit research analysis comparing the creditworthiness of one Illinois local government bond issuer to a similar credit issued in another state on the same day.

Key findings from the white paper:

  • Most S&P Illinois local municipal bond ratings are well above the State rating. While the S&P rating on the State of Illinois’ G.O. bonds is currently the lowest of any U.S. state, S&P maintains many high-grade ratings on Illinois municipalities. 50% of the local governments in Illinois rated by S&P are currently rated AA- or higher, and 92% are rated A or higher. This indicates that others also believe there are good credits within Illinois, despite the negative headlines about the State’s finances.
  • Illinois vs. non-Illinois yield comparison case study revealed difference of 15 basis points. The pricing of two bonds issued on the same day with the same rating were compared as an illustration of the “Illinois effect” — Houston County, Alabama and Peoria County Community School District No. 323, Illinois. Peoria’s 10-year maturity pays an additional 15 basis points over Houston.
  • Yield penalty paid by local Illinois issuer unjustified. Both municipal bond issuers were analyzed using the Bernardi municipal credit research process. Despite having a stronger security pledge and underlying credit quality, the 10-year maturity for the Peoria bond pays an unjustified additional yield over Houston’s warrants.

The Bernardi report highlights the importance of thorough, independent municipal bond credit research. There are many local Illinois issues with good credit fundamentals that provide attractive investment opportunities due to the “Illinois effect”. The paper is available for download at

About Bernardi Securities, Inc.

A leading municipal bond boutique based in Chicago, Bernardi Securities, Inc. specializes in active municipal bond portfolio management and innovative public finance services.  The firm underwrote and marketed more than $2.1 billion in bond issues last year to help finance public purpose municipal, county, school, park and water/sewer districts throughout the country. The Bernardi mission has remained the same since the firm’s founding in 1984 – specialize in the municipal bond market to deliver superior performance for clients. For more information, visit or follow the firm on Twitter @BernardiMuni.

For more information, please contact Matt Bernardi at 312-281-2015 or [email protected].