The market for tax-exempt municipal bonds got a jolt of energy Wednesday morning with the issuance of $1.2 billion of New York tobacco settlement bonds, even as yields softened across most of the maturity spectrum. In Chicago, an approval by lawmakers to overhaul Illinois' pension funds stoked interest in that state's bonds.

The Citi-led tobacco deal featured two series of bonds rated AA-minus by Standard & Poor's and Fitch Ratings with maturities ranging from 2018 to 2022. The deal's short-term calls were appealing to buyers who grabbed up the bonds quickly, a New York-based trader said.

"It's going really well with the short calls and kickers offered in the deal," the trader said in an interview. "This was the big deal kind of ending the year for New York. It was a big amount to go right out the door off the bat."

Bonds maturing in 2020 with a 5% coupon and optional call in 2015 were scooped up the fastest, he said.

Yields in the first series ranged from 0.65% with a 3% coupon in 2018 to 2.15% with a 5% coupon in 2022. The bonds feature optional par calls as early as 2014 for bonds maturing in 2018, and 2017 for bonds maturing in 2022.

The second series offered bonds with 5% coupons and yields ranging from 0.80% in 2019 to 2.15% with a 5% coupon in 2022. The bonds feature optional par calls as early as 2014 for bonds maturing in 2019.

Traders in Chicago were mixed over the impact of legislation approved by the General Assembly there that would alleviate Illinois' massive $100.5 billion burden from unfunded pension liabilities.

"Illinois stuff seems to really be picking up after the announcement," a trader in Chicago said. "Nobody really bought into the speculation that something would actually get done - I mean, it's Chicago. It doesn't go as far as it needs to, but it's a start, and the market clearly likes it."

Another Chicago-based trader said the legislation seemed positive but would likely be challenged in court by the city's unions. The move may be reflected more strongly in the muni market if it holds up over the coming months, he said.

Yields on the Municipal Market Data triple-A scale remained higher through Wednesday afternoon. Bonds maturing between 2017 and 2019 saw yields rise as much as three basis points, while yields on bonds with maturities beyond 2020 were up three to five basis points. Yields on bonds maturing from 2014 to 2016 were steady.

Treasuries were weaker across the yield curve. The benchmark 10-year and 30-year yields gained six basis points, to 2.85% and 3.91%, respectively. The two-year was unchanged at 0.29%.

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