July 5, 2017 / 2:26 PM / 21 days ago

Illinois bonds trade higher in wake of state budget action

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CHICAGO, July 5 (Reuters) - Prices on some Illinois general obligation bonds rose in secondary market trading on Wednesday after a holiday weekend packed with legislative action on the state's first budget since 2015.

Spreads on bonds due in 2025 tightened to a range of 238 to 210 basis points over Municipal Market Data's benchmark triple-A yield scale from a previous 276 basis points, according to MMD. For some bonds maturing in 2029, the spread narrowed to 220 basis points over the scale from 275 basis points.

"It's clearly a pretty big (spread) tightening in the wake of the budget legislation," said MMD analyst Greg Saulnier.

Over the Fourth of July holiday weekend, the Democratic-controlled Illinois House and Senate passed a $36 billion fiscal 2018 spending plan and $5 billion income tax hike aimed at ending a two-year budget impasse.

While Republican Governor Bruce Rauner vetoed the trio of budget and revenue bills on Tuesday, the Senate quickly overrode his action.

It is now up to the House to vote to overturn the vetoes and enact the budget and tax hike. It was not clear when that chamber would take up the vetoes.

Illinois has the widest so-called credit spreads over MMD's scale and the lowest credit ratings among the 50 U.S. states. With the budget impasse entering a third-straight year with Saturday's start of fiscal 2018, Illinois risked having its bond ratings sink to junk. (Reporting by Karen Pierog; Editing by Jonathan Oatis)

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