Nov. 23 (Bloomberg) -- U.S. corporate bond sales reached an annual record of $1.171 trillion as borrowers took advantage of low interest rates and surging demand for debt securities following last year’s credit freeze.

Sales of investment-grade and high-yield, high-risk debt compare with the more than $1.167 trillion that companies sold in all of 2007, the previous record, according to data compiled by Bloomberg. Last year, the total was $874 billion.

Issuance has soared as companies that couldn’t sell debt following the collapse of Lehman Brothers Holdings Inc. in September 2008 grabbed at opportunities to tap the market when it re-opened this year, said Robert Schumacher, senior portfolio manager at La Defense, France-based Axa Investment Managers.

“This is the way the Federal Reserve facilitates the movement of credit back into the economy,” said Schumacher, who helps oversee $30 billion in fixed-income assets from Greenwich, Connecticut. “If you want to put money in the hands of those than can improve consumption, you put it in the hands of corporations.”

Companies sold a record $385.9 billion in the first quarter of this year as borrowers accessed the thawing credit markets, Bloomberg data show. Corporate issuance was $331.9 billion in the second quarter and $268.4 billion in the third quarter.

Sales of investment-grade bonds reached $1.031 trillion as of Nov. 23, compared with $930.5 billion in the similar period in 2007. High-yield sales are $139.6 billion, compared with $149.1 billion in all of 2006, the record year for junk-bond issuance.

‘Return to Growth’

“Corporations are rebuilding their balance sheets, they’re rebuilding them at the fastest we’ve seen this happen in decades,” Schumacher said. “They’re positioning themselves for what they feel comfortable will be a return to growth,” he said.

Companies locked out of credit markets during the financial crisis last year are borrowing more aggressively and selling longer-dated debt to avoid being trapped by refinancing risk as they were in 2008, said Brian Yelvington, director of fixed- income research and strategy at Knight Libertas LLC in Greenwich.

“Many corporations were forced to rethink dependence on short-term funding markets,” he said. Treasurers “locked up financing when they could.”

Fed Policy

Borrowing costs also were low by historical standards, Yelvington said. The Fed last year cut its target for overnight loans among banks to a range of zero percent to 0.25 percent as the government created programs to free up credit amid the worst financial crisis since the Great Depression.

Yields on corporate bonds fell to 5.74 percent as of Nov. 20 from 9.76 percent at the end of last year, according to Merrill Lynch & Co.’s U.S. Corporate & High Yield Master index.

This year’s record issuance has been boosted by borrowers taking advantage of the Federal Deposit Insurance Corp.’s debt- guarantee program, which was established last year to back senior unsecured bank borrowings as part of a broader effort to protect the banking system and increase lending.

Financial-services companies issued $199.9 billion of debt guaranteed by the FDIC this year before the program ended on Oct. 31, Bloomberg data show.

Citigroup Inc., the New York-based lender that is the third-largest bank by assets, and General Electric Co.’s finance unit were the year’s biggest issuers, borrowing a combined $98.7 billion, according to data compiled by Bloomberg.

Nonfinancial Issuers

Anheuser-Busch InBev NV, based in Leuven, Belgium, and the world’s largest brewery, Pfizer Inc. of New York, the world’s biggest drugmaker, and its Basel-Switzterland-based rival Roche Holding AG, were the biggest nonfinancial issuers of corporate bonds, each selling $13.5 billion of dollar-denominated debt with maturities greater than 18 months, Bloomberg data show.

Sales of investment-grade bonds in the U.S. may decline 20 percent to $800 billion next year as refinancing of commercial paper and bank loans slows and banks seek to reduce debt, analysts led by Hans Mikkelsen at Bank of America Merrill Lynch wrote in a Nov. 19 report.

Junk-bond sales in the U.S. may reach $189 billion in 2010 as low interest rates spur demand for higher-yielding assets, according to Bank of America Merrill Lynch.

High-yield, high-risk bonds are rated below BBB- by Standard & Poor’s and less than Baa3 by Moody’s Investors Service.

To contact the reporters on this story: Gabrielle Coppola in New York at gcoppola@bloomberg.net; Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net

Last Updated: November 23, 2009 16:15 EST