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UPDATE 1-Illinois sells first $1.5 bln of bonds to pay overdue bills

(Adds spreads over MMD scale, analyst comments)

CHICAGO, Oct 17 (Reuters) - Illinois on Tuesday sold the first $1.5 billion of a planned $6 billion of tax-exempt debt in the U.S. municipal market, with Bank of America Merrill Lynch winning $1 billion of general obligation bonds and J.P. Morgan Securities winning $500 million of bonds in competitive bidding.

The state is scheduled to sell the remaining $4.5 billion of bonds through a team of underwriters next week. Proceeds are earmarked for paying off a huge pile of overdue bills from vendors and service providers.

Bonds due in 2018 and won by BofA were "aggressively" priced with a 1.64 percent yield that narrowed Illinois' spread over Municipal Market Data's benchmark triple-A yield curve to 70 basis points from 100 basis points ahead of the sale, Greg Saulnier, a MMD analyst, said.

BofA won bonds due in 2029 with a yield of 3.78 percent, which slightly increased the spread over the scale to 165 basis points from 163 basis points, according to MMD, a unit of Thomson Reuters.

"Overall the bonds priced pretty good," Saulnier said.

The yield on the bonds won by J.P. Morgan that mature in 2019 was not initially disclosed.

An impasse between Illinois' Republican governor and Democrats who control the legislature left the state without complete budgets for two fiscal years and ballooned the bill backlog to a record $16 billion.

The legislature in July enacted a fiscal 2018 budget that included the bond authorization, as well as an income tax hike over the governor's vetoes. (Reporting by Karen Pierog; Editing by Matthew Lewis)