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Illinois Yields Approach Junk as 2014 Rally Falters

Illinois is back in the doghouse among investors in the $3.7 trillion municipal-bond market.

The extra yield investors demand to own 10-year Illinois bonds rather than AAA munis has surged 0.55 percentage point since May to 1.64 percentage points, data compiled by Bloomberg show. The gap grew after lawmakers on May 31 passed a budget with a $2 billion hole. Then last month, the state Supreme Court ruled that government retirees’ health-insurance premiums were shielded from cuts, and Standard & Poor’s changed its outlook on Illinois to negative.