Sales of junk bonds set a global record last week as risky companies took advantage of strong investor demand and low rates to refinance debt amid shrinking bank lending.

Companies with ratings below investment-grade, which are commonly known as high-yield or junk, issued $11.7bn of bonds, marking the biggest week for new issuance, according to Thomson Reuters. With $14.4bn raised this month, it is the best start for the high-yield markets since records began in 1980.

Issuance by junk-rated US companies has been strong since the second half of last year, but the smaller and less liquid market for this debt in Europe has just begun to take off after the financial crisis.

“Given loan markets are still reluctant to lend, the bond markets may have to do the job of banks for some time to come,” said Alexander Moss, head of high-yield and leveraged loans at Insight Investment Management (Global), who is expecting record European issuance this year.

“European high-yield is going to be a very different market than it was before the crunch.”

At $5.3bn, last week was the second-largest ever for high-yield debt sales from European issuers, Thomson Reuters said. Virgin Media tripled the size of its first bond offering to £1.5bn ($2.4bn), making it the biggest sterling-denominated junk bond issue on record.

Football club Manchester United is set to start a roadshow in the US, having marketed to investors a debut £500m bond in Asia and Europe last week. Directories business Seat Pagine and Kerling, the Norwegian subsidiary of chemical group Ineos, are among the companies planning to sell junk bonds soon, according to Standard & Poor’s LCD.

The record issuance has been driven by the refinancing of loans with longer-term bonds, but bankers expect a re-emergence of acquisition financing.

“You have perfect conditions in the high-yield market,” said Jean-Francois Astier, head of leveraged finance Americas at Barclays Capital. “The economy is improving while the Federal Reserve continues to keep rates low.”

Companies have been rushing to tap strong demand, which has been driven by investors pouring money into junk bond funds in search of yield as interest rates remain low and the outlook for equities remains uncertain.

“There have been inflows into the asset class from a reallocation by pensions and retail money from other fixed income products and equity,” said Kevin Sterling, head of high-yield capital markets at Goldman Sachs.

The demand, in turn, has made borrowing costs attractive for issuers. Average US junk bond yields have slipped below 9 per cent for the first time in more than two years.

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