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(Adds final bond spreads, details on Medicaid)
CHICAGO, June 9 (Reuters) - Prices of some Illinois general obligation bonds rose on Friday in U.S. municipal market trading, recouping some of the losses from Thursday's deep drop.
The price rebound narrowed spreads over Municipal Market Data's benchmark triple-A yield scale to 305 basis points from a record 335 basis points on Thursday for Illinois bonds due in 10 years, according to MMD. The spread on 20-year bonds tightened to 260 basis points from 290 basis points.
"I think the pendulum kind of swung too much the other way (on Thursday)," said MMD analyst Randy Smolik.
Illinois has the widest credit spreads over MMD's scale of any U.S. state, an indication that investors are demanding much heftier yields for its debt.
The state's bonds were in meltdown mode on Thursday, a day after a U.S. judge made it clear that cash-strapped Illinois must find more money to pay Medicaid providers despite its ongoing budget impasse.
Managed care organizations that pay doctors who treat the poor and disabled covered by Medicaid are owed $2 billion by the state, which has been fully paying for other things like debt service on bonds and pensions.
A stalemate between Illinois' Republican governor and Democrats who control the legislature has left the state without a complete budget for nearly two straight fiscal years.
Lawmakers ended their spring session on May 31 without a deal for a third fiscal year, triggering downgrades that pushed Illinois' credit ratings from S&P and Moody's Investors Service to a step above junk.
Reporting by Karen Pierog; Editing by Matthew Lewis and Steve Orlofsky