Oct. 31 (Bloomberg) -- U.S. state and local government borrowers sold $5 billion of fixed-rate bonds for a second straight week, after a monthlong freeze in issuance, even as some deals were scaled back and borrowing costs rose.

Trinity Health, the fifth-largest nonprofit hospital group, raised almost $500 million in Michigan and Idaho, leading tax- exempt borrowers. The School District of Philadelphia sold about $400 million of debt, aided by Berkshire Hathaway insurance. Houston, New York City and the Long Island Power Authority each sold fewer bonds than planned, as demand that drove a record drop in yields last week faltered.

``It was a difficult market, but we're pleased with the deal we were able to get done,'' Elizabeth McCarthy, chief financial officer of the power authority, which borrowed $149 million to refinance debt, down from more than $300 million.

The Bond Buyer 20, a weekly index of yields on benchmark general obligation bonds due in 20 years, rose 3 basis points, or 0.03 percentage point, to 5.35 percent. The gauge hit an eight-year high of 6.01 percent this month, after averaging 4.64 percent during the year through mid-September, when Lehman Brothers Holdings Inc. filed the largest-ever bankruptcy.

During the five weeks beginning then, municipal borrowers sold an average $1.5 billion in fixed-rate bonds a week, down from more than $6 billion before the latest round of credit- market tumult, according to data compiled by Bloomberg.

The mid-October rally that Municipal Market Advisors called unprecedented helped to draw more issuers back into the market, while also paring losses on tax-exempt bonds for the month.

Through yesterday, tax-exempt bonds have lost 1.9 percent, according to Merrill Lynch & Co.'s total-return Municipal Master Index. That decline would make October the third-worst in a year of 5 percent drops in February and September. For the year, the municipal index is down 5.7 percent, headed for its worst annual performance since the 6.3 percent drop nine years ago.

To contact the reporter on this story: Jeremy R. Cooke in New York at jcooke8@bloomberg.net.

Last Updated: October 31, 2008 07:28 EDT