Amid firmness in the municipal market yesterday, Illinois sold $1 billion of notes.

“It’s fairly quiet, but we’re somewhat improved on the day,” a trader in New York said. “Out long, we’re better maybe two or three basis points. We’re not really seeing those gains throughout the scale, though, maybe a basis point or so better on the shorter end. But we’re a bit firmer ­overall.”

In the new-issue market yesterday, Illinois competitively sold $1 billion of general obligation notes in two series, both to Morgan Stanley.

Morgan won the $500 million series that matures in April 2010 with a true interest cost of 1.80%. It won the other $500 million series, which matures in May 2010, with a TIC of 1.91%. All the notes were priced at an interest rate of 1.86%, with a 4% coupon.

“We have an obligation to the community organizations and vendors who provide services for the state to get them paid as quickly as possible,” Illinois Gov. Pat Quinn said in a press release.

“These are difficult economic times for all of us, so it’s absolutely critical that our citizens aren’t unduly impacted as we work to get the state back on long-term, sound financial ­footing,”

The notes are rated SP-1-plus by Standard & Poor’s and F1 by Fitch Ratings.

Trades reported by the Municipal Securities Rulemaking board yesterday showed gains. Bonds from an interdealer trade of Chicago 5s of 2026 yielded 4.50%, down one basis point from where they traded Wednesday. Bonds from an interdealer trade of New York City Municipal Water Finance Authority 5s of 2029 yielded 4.63%, down three basis points from where they were sold Wednesday. A dealer bought from a customer Utah Transit Authority BABs, 5.94s of 2039 at 5.93%, one basis point lower than where they traded Wednesday.

A dealer sold to a customer California 6.5s of 2033 at 5.12%, down one basis point from where they traded Wednesday. A dealer sold to a customer New York Liberty Development Corp. 5.25s of 2035 at 5.88%, three basis points lower than where they were sold Wednesday. Bonds from an interdealer trade of Washington 5s of 2024 yielded 3.80%, down five basis points from where they traded Wednesday.

“There’s definitely some firmness on the long end, at least three basis points,” a trader in San Francisco said. “It’s firm up and down the curve, but mostly on the long end. On the short and intermediate paper, you’re looking at maybe a basis point or two.”

The Treasury market also showed some gains yesterday. The yield on the benchmark 10-year note, which opened at 3.11%, was quoted near the end of the session at 3.09%.

The yield on the two-year note was quoted near the end of the session at 0.86% after opening at 0.87%. The yield on the 30-year bond, which opened at 4.10%, was quoted near the end of the session at 4.09%.

As of Wednesday’s close, the triple-A muni scale in 10 years was at 92.0% of comparable Treasuries, according to Municipal Market Data. Additionally, 30-year munis were 108.3% of comparable Treasuries.

As of the close Wednesday, 30-year tax-exempt triple-A general obligation bonds were at 122.0% of the comparable London Interbank Offered Rate.

Elsewhere in the new-issue market yesterday, Wachovia Bank NA priced $109.4 million of water and sewer revenue bonds for Clearwater, Fla., in two series.

Bonds from the $67.7 million Series A mature from 2019 through 2023, with term bonds in 2032 and 2039. Yields range from 4.01% with a 5% coupon in 2019 to 5.40% with a 5.25% coupon in 2039. The bonds are callable at par in 2019.

Bonds from the $41.7 million Series B mature from 2009 through 2018, with yields ranging from 0.90% with a 4% coupon in 2009 to 3.72% with a 5% coupon in 2018. The bonds are not callable. The credit is rated A2 by Moody’s Investors Service, AA-minus by Standard & Poor’s, and A by Fitch.

JPMorgan priced $54.7 million of revenue bonds for the California Health Facilities Financing Authority. The bonds mature from 2010 through 2021, with yields ranging from 2.43% with a 5% coupon in 2010 to 5.42% with a 5.25% coupon in 2021. The bonds, which are callable at par in 2019, are rated A by both Standard & Poor’s and Fitch.

Boston competitively sold $31.5 million of general obligation bonds to Barclays Capital with a TIC of 2.32%. The bonds mature from 2010 through 2018, with yields ranging from 0.75% with a 2.25% coupon in 2010 to 2.69% with a 3.5% coupon in 2018. The bonds, which are not callable, are rated Aa1 by Moody’s and AA-plus by Standard & Poor’s.

In economic data released yesterday, initial jobless claims for the week ended May 9 came in at 637,000 after a revised 605,000 the previous week. Economists polled by Thomson Reuters had predicted 605,000 initial jobless claims.

The producer price index rose 0.3% in April after a 1.2% drop the previous reading. Economists polled by Thomson had predicted a 0.1% rise. Core PPI climbed 0.1% in April after no change the previous month. Economists polled by Thomson Reuters had predicted a 0.1% uptick.

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Corrected May 15, 2009 at 7:16PM: The headline identified Illinois' $1 billion deal as consisting of Build America Bonds when it was actually notes, and the issue is rated SP-1, not SP-1-plus, by Standard & Poor's. In addition, the notes were priced at an aggregate interest rate of 1.86%, with re-offering yields of 1.68% on the notes maturing in April 2010, and 1.73% on the notes maturing in May 2010.