(Bloomberg) -- Illinois took advantage of an improving credit grade to speed up an $1.8 billion debt sale, bolstered by investors’ hunger for yield amid a rally in the municipal market.

The state sold $1.55 billion in tax-exempt bonds and $250 million in taxable debt for capital projects and to finance an accelerated pension payment program on Tuesday. Illinois received more than $12 billion in orders, which includes $1.5 billion from retail investors, according to the state.  

While the state is still the lowest rated in the US, it has earned nine credit rating upgrades in the last three years, pulling back from the brink of junk near the start of the pandemic. Illinois now carries three A-level grades.

“Illinois received tremendous feedback from the bond market,” Paul Chatalas, director of capital markets for the state of Illinois, said in an emailed statement on Wednesday. “Based on this very strong demand, the State accelerated its pricing to capture positive momentum.”

The initial plan was for underwriters led by Jefferies Financial Group Inc. to take orders from retail buyers until 4:00 p.m. New York time on Tuesday, with institutional pricing to follow, according to preliminary pricing wires seen by Bloomberg. Just hours later, the retail order period was terminated and the deal started taking orders from professional money managers ahead of schedule. 

Jefferies didn’t immediately respond for comment. 

The recent muni market rally also played a role in the “positive reception,” said Dan Solender, director of tax-free fixed income for Lord, Abbett & Co., which owns the state’s debt. Yields for AAA-rated state and local debt maturing in 10 years have tightened for six straight sessions to 2.6% from nearly 2.8% on May 1, according to data compiled by Bloomberg. 

The bond sale — the biggest this week as issuance picks up — reflects the current state of the overall $4 trillion muni market in which credit spreads are narrowing and demand is picking up.

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“As is often the case, a large new issue focuses market participants’ attention on the credit and in retrospect the spreads may have been too wide,” said John Miller, head and chief investment officer of the high-yield muni credit team at First Eagle Investments.

Illinois’ tax-exempt, 10-year bonds sold at a penalty of 66 basis points over benchmark securities, according to data compiled by Bloomberg. That’s down from preliminary pricing with a spread of 75 basis points, though still the highest among its peers. 

“The final result showed some of the tightest credit spreads the state has received in recent history,” Chatalas said.

The bond sale also reveals investors’ growing desire for big deals, several of which have been over-subscribed this year, according to Miller. 

“Large deals with a sound credit story behind them and some meaningful amount of extra yield are doing extremely well this year,” he said. “The demand comes out of the woodwork and surprises people.”

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