Nov. 13 (Bloomberg) -- U.S. state and local governments sold $8.4 billion of bonds this week, revised data compiled by Bloomberg show, as investor demand allowed Connecticut and a California agency to expand their offerings.

The number of new issues fell from $10.7 billion last week as bond markets closed Wednesday for Veterans’ Day, Bloomberg data show. Yields on top-rated 30-year general obligation bonds tracked by Municipal Market Advisors of Concord, Massachusetts, were little changed, slipping by 0.01 percentage point to 5.02 from a week earlier. The daily index is 28 basis points higher than the year’s low reached Oct. 1 after a rally in prices.

“Over the last couple of weeks, they’ve been pushed up, but if you look at it in the totality of the year, we’ve had a big rally,” said Michael Walls, who oversees $540 million in high-yield municipal bonds for Waddell & Reed Financial Inc. in Overland Park, Kansas. “There has been some profit taking.”

Municipal bonds soared this year as investors poured money into tax-exempt mutual funds, pushing down the yields that local governments needed to offer to raise money. While prices have slipped since September, municipal bonds still have 13 percent return for the year, marking the best performance since a 17 percent gain during all of 2000, according to Merrill Lynch & Co. indexes.

Connecticut officials, after getting $355 million of bond orders from small buyers led by state residents, expanded the size of its offering this week to forgo a planned second sale of its so-called economic recovery notes. After initially offering $600 million, the state sold $1.08 billion, raising funds to replenish cash used to close last year’s budget deficit and finance school construction projects.

More Than Expected

“Investors’ reaction to our sale was more than we had expected,” Connecticut Treasurer Denise Nappier said in a release today. “In just one transaction, we were able to negotiate very attractive pricing and, as a result, take advantage of economies of scale.”

A public authority in California sold $1.9 billion of bonds on behalf of local governments whose property tax revenue was tapped to help the state close its budget deficit. The debt, maturing in 2013, is backed by California’s requirement to repay the money, giving the securities the same credit rating as the state government, the lowest among its peers.

The sale added to a flood of borrowing by California, with almost $12.5 billion of long-term debt tied to the state issued since Oct. 5. The bonds sold this week by the California Statewide Communities Development Authority yielded 4 percent, compared with a yield of 3 percent the agency estimated last week.

“New issues have been priced cheaper than they have in the past and thus have been well received,” Walls said.

The California Statewide Communities Development Authority’s 5 percent securities due in June 2013 rose to about 104.5 cents on the dollar today to yield 3.64 percent, 36 basis points less than at issue, data reported to the Municipal Securities Rulemaking Board show.

To contact the reporters on this story: William Selway in San Francisco at wselway@bloomberg.net; Jeremy R. Cooke in New York at jcooke8@bloomberg.net.

Last Updated: November 13, 2009 16:20 EST