Junk bond sales reached a record this month as rising profits and record low federal reserve interest rates foster lending and investment to the lowest-rated borrowers.

Companies worldwide issued $38.3 billion of junk bonds in March, passing the previous high of $36 billion in November 2006, according to data compiled by Bloomberg. Yields fell 0.95 percentage point to within 5.96 percentage points of government debt, the narrowest gap since January 2008, Bank of America Merrill Lynch index data show.

This is “an almost ‘Goldilocks’ environment for leveraged credit markets,” JPMorgan Chase & Co. analysts led by Peter Acciavatti, the top-ranked high-yield strategist in Institutional investor magazine’s annual survey for the past seven years, said in a March 26 report to the bank’s clients.

Sales soared as investors plowed a record $33.6 billion into speculative-grade funds this quarter, according to Cambridge, Massachusetts-based research firm EPFR Global. Bonds of Stamford, Connecticut-based Frontier Communications Corp. and Consol Energy Inc. of Pittsburgh, which sold a combined $5.95 billion of debt last week, rose about 2 cents on the dollar to 102 cents.

That’s a turnaround from February, when companies canceled sales at the fastest pace since credit markets began to freeze in 2007 amid concern that the inability of European governments to trim their budget deficits will threaten a global recovery.

Loan Revival

About $20 billion of high-yield, or leveraged, loans have been completed in February and March, compared with $38 billion for all of 2009, according to New York-based JPMorgan. Speculative-grade securities are rated below Baa3 by Moody’s investors Service and BBB- by Standard & Poor’s.

Elsewhere in credit markets, yield spreads for company bonds shrank by an average 3 basis points last week to 151 basis points, or 1.51 percentage points, the narrowest since November 2007, according to Bank of America Merrill Lynch’s Global Broad Market Corporate Index. Yields rose to 4.02 percent from 3.98 percent.

AmeriCredit Corp. will sell $200 million of bonds tied to loans in its first asset-backed offering since the end of a U.S. program to revive that market. OAO Russian Railways sold $1.5 billion of debt in its debut foreign bond issue. Caixa Economica Federal, a government-controlled lender, plans to become the first Brazilian bank to sell local debt with a maturity of at least two years after the nation’s central bank opened up the market for such sales.

Subprime Auto Debt

Fort Worth, Texas-based AmeriCredit, a lender to auto buyers with poor credit, last issued similar debt in February through the Federal Reserve’s Term Asset-Backed Securities Loan Facility, which attracted investors by financing purchases of the securities. The TALF program ended earlier this month.

OAO Russian Railways’s foreign bonds were sold at a lower yield than OAO Gazprom’s similar-maturity debt on speculation the notes will be included in benchmark bond indexes. The seven- year bonds were priced to yield 5.739 percent on March 26, according to a banker with knowledge of the transaction. That compares with a yield of 6.065 percent on Gazprom’s dollar bonds due 2018, according to Bloomberg prices.

Caixa Economica, a Brasilia-based bank founded in 1861, may sell about 50 million reais ($27.5 million) of bonds called “letras financeiras” in May, Marcio Percival Alves Pinto, the bank’s vice-president of finance, said in a telephone interview.

Glencore International AG, the world’s largest commodities trader, plans to tap banks in Asia for the first time as it seeks to borrow at least $7 billion, according to two people familiar with the matter.

Default Swaps

The cost to protect against defaults on U.S. corporate bonds fell, trading in benchmark credit derivatives indexes show. The Markit CDX North America Investment Grade Index Series 14, which investors use to speculate on creditworthiness or to hedge against losses, declined 0.7 basis point to 87.25 basis points on March 26, according to CMA DataVision. For the week, the index rose 0.6 basis point.

In London, the Markit iTraxx Europe Index linked to credit- default swaps on 125 investment-grade companies rose 0.88 basis point to a mid-price of 78.6, Markit composite prices show.

Credit-default swaps tied to Greek government bonds fell 13.8 basis points to 295.5 on March 26, according to CMA, as leaders of the 16-nation euro region agreed to a potential bailout for Europe’s most indebted country. Default swaps on Greece soared to as high as 428 basis points on Feb. 4 on speculation the nation’s debt woes may spread.

Global Sales

Bond risk increased in Australia and Japan, with the Markit iTraxx Australia index gaining 1 basis point to 84.5 basis points as of 11:16 a.m. in Sydney, according to Citigroup Inc. The Markit iTraxx Japan index rose 0.5 basis point to 117.5 as of 8:32 a.m. in Tokyo, according to Morgan Stanley prices.

Credit swaps pay the buyer face value if a borrower defaults in exchange for the underlying securities or the cash equivalent. A basis point is 0.01 percentage point and equals $1,000 annually on a contract protecting $10 million of debt for five years. A decrease indicates improvement in the perception of credit quality; an increase, the opposite.

Global corporate bond sales rose to $273 billion this month, up from $162 billion in February, Bloomberg data show. That compares with the monthly average of $265 billion in 2009, when sales hit a record $3.2 trillion. Companies raised $722 billion through bond issues this year, compared with $1 trillion in the first quarter of 2009.

Sales Double

Returns for the month total 0.3 percent, and 2.52 percent for the year, according to Bank of America Merrill Lynch’s Global Broad Market Corporate Index. U.S. junk bonds have gained 2.94 percent in March and 4.64 percent in 2010. JPMorgan’s Acciavatti said spreads may narrow another 85 basis points by year-end.

“Appetite is definitely there,” said Joel Levington, director of corporate credit for Brookfield Investment Management Inc. in New York, which has $24 billion in assets under management.

Sales of high-yield bonds in March more than doubled last month’s total of $16 billion, driving issuance this year to $78.5 billion, the busiest quarter on record, Bloomberg data show. High-yield companies, taking advantage of the lower borrowing costs, said they planned to repay debt with proceeds from at least $20 billion of this month’s sales.

“The mindset of investors is that this spread product is ideally situated for this kind of macro environment,” said Charles Himmelberg, the chief credit strategist at Goldman Sachs Group Inc. in New York.

Rising profits

The fastest economic growth in six years during the final three months of 2009 fueled a surge in corporate profits that may set the stage for job gains and a broader U.S. recovery. Earnings increased 8 percent in the fourth quarter, the biggest year-over-year gain in 25 years, the Commerce Department said on March 26.

Economists expect global growth of 3.6 percent in 2010 and fed Chairman Ben S. Bernanke told lawmakers March 25 that U.S. interest rates will likely remain low for some time to help the recovery.

Frontier’s four-part, $3.2 billion offering on March 26 was the largest sale of high-yield U.S. corporate bonds since May, when Teck Resources Ltd., a Vancouver-based metals producer, issued $4.23 billion of senior secured notes, Bloomberg data show.

The telephone company’s five-year notes were bid at 102.25 cents on the dollar on their first day of trading, according to RW Pressprich & Co. The seven-year debt traded at a mid-price of 102 cents, the 10-year bonds were bid at 101.5 cents and the 12- year debt was bid at 101 cents. All the securities were issued at par, Bloomberg data show.

Consol, Matalan

Consol, the coal and natural gas producer, sold $2.75 billion of notes on March 24 in its first bond in eight years, Bloomberg data show. Consol split the offering between $1.5 billion of 8 percent notes due 2017 and $1.25 billion of 8.25 percent bonds maturing in 2020, and plans to use the proceeds for an acquisition. On March 26, the 2017 notes traded at 102.375 and the 2020 notes reached 102.625, according to S&P LCD. Both were issued at par.

The S&P/LSTA US Leveraged Loan 100 Index rose 0.34 cent last week to 90.84 cents on the dollar, the sixth straight weekly gain and the highest level since June 30, 2008. Average loan rates, which are about 5.41 percentage points more than the London interbank offered rate, may narrow to 4.25 points more than Libor by year-end, Acciavatti said.

Loans of U.K. budget clothing retailer Matalan Ltd., which sold 225 million pounds ($335 million) of high-yield bonds on March 24, rose in their first day of trading last week. The loans climbed to 100.5 percent of face value, from 99 percent, according to prices provided by Mizuho Financial Group Inc. and London-based credit broker Guy Butler Ltd.

At least 17 borrowers postponed or withdrew $7.7 billion of debt sales through mid-February, according to data compiled by Bloomberg. That’s the most since more than 50 were canceled in the months after financial markets began to freeze in July 2007.