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.

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