May 15 (Bloomberg) -- Nelnet Inc. sold $1.35 billion of bonds backed by student loans, paying the lowest relative yields this year, in a sign that investor demand for the debt may be returning.

The Lincoln, Nebraska-based student-loan provider issued three-year bonds rated AAA that priced to yield 70 basis points more than the three-month London interbank offered rate, said a person familiar with today's sale, who declined to be identified because the terms aren't public. That's a narrower spread than the 105 basis points Nelnet was charged last month, and the 100 basis points the company offered on March 31.

The Nelnet sale adds to evidence that credit markets may be thawing after the collapse of subprime mortgages spawned $342.4 billion in writedowns and credit losses at financial firms worldwide. Government-guaranteed student-loan debt spreads narrowed about 5 basis points to 95 basis points last week, according to JPMorgan Chase & Co. High-yield bonds had the busiest week for new issues since November last week and borrowers sold $4.4 billion of auto-loan bonds in the past month.

``There appears to be more renewed investor interest,'' said Gary Santo, a managing director of consumer asset-backed securities at Fitch Ratings in New York. ``Investors seem to be differentiating risk across assets, which can only be a good thing for government-guaranteed collateral.''

Nelnet rose 44 cents, or 3.3 percent, to $13.66 in New York Stock Exchange composite trading. The shares have fallen 45 percent in the past year.

Costs Rise

The cost to sell student-loan debt soared this year as investors fled issues backed by consumer payments. Student lenders were also shut out of the auction-rate securities market, closing off another source of funding.

Borrowing costs are still well above the levels of last year. In May 2007, Nelnet paid a spread of just 1 basis point.

President George W. Bush signed legislation earlier this week to ensure that turmoil in the credit markets doesn't cause a shortage in student loans.

The lower yields may encourage student-loan providers to return to the asset-backed securities market, helping them raise cash to write new loans.

The Nelnet sale was managed by Bank of America Corp., Barclays PLC and Deutsche Bank AG.

Asset-backed securities are bonds backed by receivables such as payments on mortgages, student loans, auto and credit-card debt. A basis point is 0.01 percentage point.

To contact the reporter on this story: Sarah Mulholland in New York at smulholland3@bloomberg.net

Last Updated: May 15, 2008 16:25 EDT