June 20 (Bloomberg) -- Companies in Europe borrowed more money from bond investors in the past three months than in any second quarter on record, paying the highest interest costs in a decade on concern credit conditions may deteriorate further.

Sales jumped to 252 billion euros ($391 billion) from 227 billion euros in the same quarter of 2007 and from 149 billion euros in the first three months of this year, according to data compiled by Bloomberg. Bouygues SA, the world's second-biggest construction company, and U.K. phone company BT Group Plc led this week's sales of 18.4 billion euros, 43 percent higher than the weekly average for the past year.

Treasurers at investment-grade companies are borrowing at yields averaging 6.4 percent, the highest since Merrill Lynch & Co. began tracking the data in 1998, to avoid the risk of having to pay even more as a slowing economy and accelerating inflation threaten corporate earnings.

``We decided to tap the market now, given the current conditions, instead of waiting until the last minute when we won't know what the conditions will be like,'' Anthony Mellor, head of investor relations at Bouygues in Paris, said in an interview yesterday. The company raised 1 billion euros to repay debt due next May in its first bond sale since 2006.

The Paris-based company priced its seven-year bonds at a discount to yield 120 basis points above the benchmark mid-swap rate, Bloomberg data show. That's more than double the spread of 55 basis points when Bouygues sold 10-year bonds in euros in 2006. The average spread on investment-grade bonds in Europe tripled in the past year to 162 basis points, Merrill data show.

Market Shutdown

Sales are the second highest of any quarter in Europe, trailing the record 302 billion euros raised in the first three months of 2007, Bloomberg data show. Last quarter was the slowest start to any year since 2002 as investors shunned all but the safest government debt. The total in 2008 is 402 billion euros, the lowest since 2004, according to Bloomberg data.

All of the corporate bonds sold in the past three months are ranked investment grade, or Baa3 or higher by Moody's Investors Service and at least BBB- by Standard & Poor's.

Europe's market for high-risk, high-yield notes or junk bonds has been shut to new borrowers since August, even though investors had their best returns since 2003 at 7 percent this quarter, Merrill data show.

Swap Sterling

In the U.S., total sales of corporate bonds fell to $339 billion this quarter from $352 billion in the same three months last year, Bloomberg data show.

``It's difficult to predict what will happen in the markets,'' Les Winnister, treasurer for BT in London, said in an interview yesterday. ``In this current credit crunch it really makes sense to come when investors want to lend and when we have a genuine funding requirement.''

BT sold 1 billion euros of seven-year bonds at a yield of 155 basis points above the benchmark mid-swap rate on June 18. That compares with a spread of 90 basis points on six-year bonds sold by BT in November, its last issue in euros, according to Bloomberg data.

BT will use the money to refinance debt maturing in August and to help pay a dividend due in September, Winnister said. The company sold the bonds in euros to get a lower yield and then swapped the funds into pounds.

``We wanted sterling funding and the cheapest route to raising sterling was via euros and swapping it,'' Winnister said. ``If we had gone any other route it would have been more expensive and investor demand would not have been so great.''

The average yield on investment-grade corporate bonds in pounds is 7.9 percent, which is 150 basis points higher than the equivalent yields for notes in euros, Merrill data show. A basis point is 0.01 percentage point.

BMW Bonds

Bayerische Motoren Werke AG, the world's largest maker of luxury cars, raised 1.75 billion euros last month in the biggest issue from a non-financial company this quarter. The Munich- based company sold seven-year notes at a yield 70 basis points above midswaps, almost double the spread of 37 basis points on 1 billion euros of five-year debt sold by the carmaker in October.

``If you ask any investor out there at the moment they will be telling you that cash is king but investors are super liquid at the moment and some are having to invest,'' said Dom Kerr, managing director for U.K. corporate debt markets origination HSBC Holdings Plc in London.

-- With reporting by Bryan Keogh in New York. Editor: Gavin Serkin, Michael Shanahan

To contact the reporter on this story: Shelley Smith in London at ssmith118@bloomberg.net

Last Updated: June 20, 2008 10:31 EDT