April 16 (Bloomberg) -- JPMorgan Chase & Co., the second- largest U.S. bank by assets, raised $3 billion in its first dollar-denominated debt sale without the backing of the U.S. government since August.

The 10-year, 6.3 percent notes priced to yield 350 basis points more than similar-maturity Treasuries, according to data compiled by Bloomberg. A basis point is 0.01 percentage point.

JPMorgan tested the debt market as banks seek to wean themselves off of government aid and the increased scrutiny and restrictions that have come with the assistance in the aftermath of last year’s credit market crunch. The sale is an attempt to demonstrate strength before the government’s stress test results to be released next month, said Nancy Bush, an independent bank analyst in Annandale, New Jersey.

The sale “is the beginning of an effort by the banking industry to pull away from the government,” Bush said today in a telephone interview. “What we’re going to see when the stress tests results are revealed is that we have a big differentiation in this country between the strong and the not strong.”

JPMorgan is the third participant in the Federal Deposit Insurance Corp.’s debt guarantee program to test credit markets without the support. Goldman Sachs Group Inc. sold $2 billion of 10-year notes on Jan. 29 without FDIC-backing.

FDIC Backing

The Temporary Liquidity Guarantee Program opened a new channel of funding for banks unable to issue debt in U.S. markets after the collapse of Lehman Brothers Holdings Inc. in September drove yields on finance-company bonds to 11 percent from less than 7 percent.

By paying the FDIC a fee to back their bonds, banks are able to issue debt with a top AAA credit rating. The agency extended the program March 17 to cover notes issued by Oct. 31 with maturities covered thorough Dec. 31, 2012.

Goldman Sachs raised $5 billion this week by selling shares to help repay its $10 billion in federal rescue funds, then saw its stock slump on speculation first-quarter earnings at the New York-based company weren’t sustainable. Goldman Sachs, the sixth-largest U.S. bank, reported earnings April 13 that were twice as high as analysts estimated.

“The stronger firms are going to first raise equity and then test the unsecured bond market,” said Mark Kiesel, managing director and global head of Pacific Investment Management Co.’s corporate-bond portfolio management group. “The strongest companies are going to be effective at testing the waters but it’s still going to be a test for the market.”

Pimco, based in Newport Beach, California, is the world’s largest manager of bond funds.

Trading Revenue

Goldman’s non-guaranteed 7.5 percent notes priced to yield 500 basis points more than benchmarks on Jan. 29, Bloomberg data show. The notes fell 1.39 cents to 102.4 cents on the dollar at 3:14 p.m. in New York, to yield 7.16 percent, or 432 basis points more than Treasuries, according to Trace, the bond price- reporting system of the Financial Industry Regulatory Authority.

JPMorgan reported profit today that beat analysts’ estimates as fixed-income trading revenue rose to a record. The New York-based bank took $25 billion in U.S. government rescue funds through the Troubled Asset Relief Program.

In a conference call with analysts, Chief Executive Officer Jamie Dimon called the money “a scarlet letter” and “the TARP baby,” saying he is eager to repay the funds. That would free the company from compensation restrictions and other oversight that was tied to the bailout money distributed through the Treasury Department’s Troubled Assets Relief Program.

Perpetual Preferred

JPMorgan last sold dollar debt without government backing on Aug. 14, issuing $1.6 billion of perpetual preferred securities, according to data compiled by Bloomberg. Preferred stock with characteristics of both debt and equity counts toward an issuer’s capital reserves.

JPMorgan’s 6 percent securities due in 2018, the most actively-traded bonds today, fell 2.4 cents to 99.2 cents on the dollar at 3:58 p.m. in New York, to yield 6.12 percent, or 329 basis points more than Treasuries, Trace data show.

Brian Marchiony, a JPMorgan spokesman, declined to comment.

The bonds sold today are rated Aa3, the fourth-highest level of investment quality, by Moody’s Investors Service and A+, one level lower, by Standard & Poor’s.

JPMorgan is the second-biggest user of the FDIC’s debt guarantee program, selling $37.1 billion of bonds, according to data compiled by Bloomberg. Bank of America Corp. is the largest, with $41.7 billion of FDIC-backed debt. General Electric Co.’s GE Capital unit sold $4 billion of 30-year bonds without an FDIC guarantee on Jan. 6.

Yields on financial company debt relative to benchmark rates narrowed more than one percentage point as of yesterday from their 2009 high of 8.81 percentage points on March 11, Merrill Lynch & Co. data show.

To contact the reporter on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.netGabrielle Coppola in New York at gcoppola@bloomberg.net

Last Updated: April 16, 2009 16:38 EDT