Oct. 30 (Bloomberg) -- State and local governments led by California sold $11.8 billion of fixed-rate bonds this week, the most in more than four months, pushing 20-year benchmark tax- exempt yields to their highest level since late August.

The most populous U.S. state refinanced voter-approved debt to patch budget deficits with a $3.5 billion deal. Connecticut, Florida, Kentucky, Missouri and New York City also raised money for infrastructure projects through the Build America Bonds program, which provides 35 percent interest rebates from the federal government for selling taxable debt in lieu of borrowing tax-free.

Municipal issuers sold $7.8 billion in tax-exempt issues and $4 billion in taxable debt, based on revised data compiled by Bloomberg. The Bond Buyer newspaper’s weekly yield index of general obligation bonds due in 20 years rose 8 basis points, or 0.08 percentage point, to 4.39 percent, the highest since 4.53 percent at the end of August.

Issuance in October exceeded $40 billion even as investors’ appetite for yields below 4 percent waned, forcing borrowers to pay more on new issues. The Merrill Lynch Municipal Master Index, which measures the total-return of state and local debt, fell almost 2.5 percent through yesterday, the biggest monthly decline since a 5.1 percent drop in September 2008.

This week’s sales sent the amount of Build America Bonds sold since the Obama administration’s economic stimulus created the program this year to $47.4 billion, Bloomberg figures show.

Municipal bonds advanced today, sending yields on 10-year general obligation debt lower by 1 basis point to 3.17 percent, according to a daily survey by Municipal Market Advisors of Concord, Massachusetts. The index is 21 basis points higher than at the end of September.

Weekly issuance was last this high in the period ended June 12, when governments sold $11.9 billion, according to Bloomberg data. The busiest week this year, the one ended April 24, produced $15.4 billion in sales, the figures show.

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

Last Updated: October 30, 2009 16:06 EDT