Corporate bond sales worldwide topped $3 trillion for a second straight year, led by the highest-ever issuance of junk-rated debt, as borrowers locked in the lowest yields on record.

Rabobank Nederland, the world’s largest agricultural lender, and Fairfield, Connecticut-based General Electric Co.’s finance unit led $3.19 trillion of offerings, according to data compiled by Bloomberg. Ally Financial Inc., Ford Motor Credit Co. and 509 other speculative-grade companies sold $287 billion of debt in the U.S., smashing the previous record of $162.7 billion in 2009.

Signs the global economic recovery is gaining strength encouraged investors to lend money to borrowers are lower interest rates, allowing Johnson & Johnson and Wal-Mart Stores Inc. to sell bonds at what were then record-low coupons. In the U.S., bond funds took in $234.8 billion this year through October, while investors withdrew money from stock funds, according to the Investment Company Institute in Washington.

“This was a once-in-a-career opportunity to refinance everything you possibly could,” said James Kochan, who oversees $175.6 billion of bonds in Menomonee Falls, Wisconsin, as chief fixed-income strategist at Wells Fargo Funds Management LLC.

Sales declined 18 percent from last year’s $3.88 trillion as governments withdrew bond guarantees for financial companies trying to weather the credit crisis. Concern that Europe’s sovereign debt crisis would worsen slowed sales in the region.

Yields Fall

Yields on investment-grade corporate bonds worldwide fell to an average of 3.36 percent on Oct. 11, the lowest in daily data beginning in 1996, according to the Bank of America Merrill Lynch Global Broad Market Corporate Index. Yields dropped from last year’s high of 7.41 percent on March 17, 2009, translating into savings for the average borrower of $4.05 million annually for every $100 million of bonds sold.

Elsewhere in credit markets, shopping mall developer Simon Property Group Inc. arranged a 3 billion pound ($4.6 billion) loan that will help finance a takeover. The U.S. Justice Department is seeking to limit the control banks and swaps dealers have over derivatives clearinghouses and trading systems, and fewer American homeowners qualified for mortgage modifications in the third quarter.

Simon Property, the largest U.S. mall owner, will obtain funding for a preliminary 2.9 billion pound bid for Capital Shopping Centres Group Plc from banks led by Citigroup Inc., Deutsche Bank AG, Goldman Sachs Group Inc. and Morgan Stanley, according to a statement from the Indianapolis-based company.

Offer Deadline

The U.K. Takeover Panel gave Simon Property until Jan. 12 to announce a “firm intention” to make an offer for Capital Shopping. Simon Property made a conditional offer of 425 pence a share on Dec. 15. The bid depends on Capital Shopping abandoning a 1.6 billion-pound purchase of the Trafford Centre in Manchester, a transaction would give Peel Group, the seller, as much as 25 percent of Capital Shopping.

The U.S. Justice Department, which has been investigating possible anticompetitive practices in derivatives markets, called for tighter limits on the control banks and swaps dealers have over clearinghouses and trading systems.

In October the Commodity Futures Trading Commission and Securities and Exchange Commission proposed a 20 percent cap on the ownership stake any member of an exchange or execution facility can have. The proposal didn’t include a limit on the aggregate stake banks and other dealers may have. The Justice Department said the rules “will not sufficiently reduce the risk that major dealers” will control trading systems.

Fewer Delinquencies

The number of delinquent borrowers who started U.S. home loan modifications fell last quarter as fewer people qualified for easier payment terms, according to the Treasury Department.

Loan servicers started 470,321 modification or payment plans in the three months ended Sept. 30, down 17 percent from the previous quarter and 32 percent from a year earlier, the Treasury said in a report today.

The cost to protect U.S. company bonds was little changed at about an eight-month low. The Markit CDX North America Investment Grade Index, which investors use to hedge against losses or to speculate on creditworthiness, fell 0.1 basis point to a mid-price of 85.6 basis points as of 5:30 p.m. in New York, according to index administrator Markit Group Ltd.

In London, the Markit iTraxx Europe Index of 125 companies with investment-grade ratings rise 0.3 to 105.8.

Citigroup, Loans

Credit swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point, or 0.01 percentage point, equals $1,000 annually on a contract protecting $10 million of debt.

Bonds from New York-based Citigroup were the most actively traded U.S. corporate securities by dealers, with 57 trades of $1 million or more, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

The Standard & Poor’s/LSTA US Leveraged Loan 100 Index rose 0.08 cent to 92.76 cents on the dollar, the highest since April 27. The index tracks the 100 largest dollar-denominated first- lien leveraged loans. Leveraged loans and junk bonds are rated below Baa3 by Moody’s Investors Service and lower than BBB- by S&P.

In emerging markets, relative yields rose by 3 basis points to 240 basis points, or 2.40 percentage points, according to JPMorgan Chase & Co. index data.

Economic Recovery

Corporate bonds markets continued their recovery amid speculation that a strengthening economy will bolster the ability of borrowers to meet debt payments. The global economy will expand 4.2 percent next year and 4.6 percent in 2012, Paris-based Organization for Economic Cooperation and Development said Nov. 18 in its semi-annual economic outlook.

“Credit quality of corporates is really stellar just on any measurement,” said Didi Weinblatt, vice president of mutual fund portfolios at USAA Investment Management in San Antonio, where she helps oversee about $45 billion. “They’ve got cash, they can raise cash, they haven’t overbuilt. Their balance sheets are in pretty good shape in general.”

Companies in the U.S. sold $844 billion of investment-grade bonds denominated in dollars this year, a 21 percent decline from 2009, as borrowers built a $1.17 trillion cash hoard, the most on record when compared with the value of their assets.

Yields on U.S. investment-grade bonds sank to a record 3.53 percent on Nov. 4, rising to 4.12 percent as of today, according to Bank of America Merrill Lynch index data. The measure for high-yield bonds fell to 7.55 percent on Nov. 9, the least since March 11, 2005, when it reached 7.53 percent.

Riskiest Borrowers

Record sales of junk bonds were led by the riskiest borrowers. Debt rated below Caa1 by Moody’s or an equivalent CCC-plus by S&P made up 16 percent of issuance, up from 8.5 percent in 2009.

Merck & Co., the second-largest U.S. drugmaker after Pfizer Inc., took advantage of a one-step increase in its credit rating by S&P to AA to sell $2 billion of 5- and 10-year notes at its lowest coupons for those maturities, Bloomberg data show.

“We were well-received in the marketplace,” Mark McDonough, treasurer of Whitehouse Station, New Jersey-based Merck, said in a telephone interview after the company’s Dec. 7 sale. “By historical standards, the interest-rate environment was very attractive.”

The two biggest U.S. bond sales of the year came on Feb. 4, when foodmaker Kraft Foods Inc. sold $9.5 billion of debt to help fund its acquisition of Cadbury Plc and Warren Buffett’s Berkshire Hathaway Inc. sold $8 billion of bonds to help pay for its purchase of railroad Burlington Northern Santa Fe Corp.

JPMorgan, GE Capital

JPMorgan, the second-biggest U.S. bank by assets after Bank of America Corp., and the finance unit of GE led non-state guaranteed corporate bond sales in dollars, according to data compiled by Bloomberg. JPMorgan issued $15.4 billion of debt and General Electric Capital Corp. offered $12.8 billion.

GE Capital, which said it accessed nine major debt markets in 2010, plans to issue $25 billion to $30 billion of long-term securities next year, according to GE treasurer Kathryn Cassidy. The company, which also plans to maintain a commercial paper program between $40 billion and $50 billion, is preparing for $62 billion of maturities in 2011 and “heavy” 2012 maturities of $81 billion, Cassidy said in a Dec. 7 call with investors.

AT&T Inc. faces $8.5 billion in bonds coming due next year, the most among non-financial U.S. issuers, Bloomberg data show.

Among the biggest sellers were Bank of Nova Scotia with $16.1 billion in sales, Morgan Stanley with $11.6 billion and Wal-Mart at $10 billion, the data show.

Wal-Mart, J&J

“Financial supply was actually lower than we thought it would be,” said Andrew Karp, head of investment-grade debt syndicate for the Americas at Bank of America Merrill Lynch. “The disruption in the markets relating to the European sovereign debt crisis impaired access for a number of European financial institutions. Additionally, the continued deleveraging of U.S. financial institutions created less need for institutional funding.”

Wal-Mart’s offerings included a $5 billion sale on Oct. 18 comprising three- and five-year notes with coupons that were the lowest on record for those maturities, according to Bank of America, one of the transaction’s managers. J&J issued $1.1 billion of 10- and 30-year debt on Aug. 12 that paid record-low coupons, according to Citigroup, which helped arrange the sale.

JPMorgan managed 13.8 percent of U.S. investment-grade offerings, handling 496 deals worth $101.6 billion, excluding self-led sales, Bloomberg data show. The bank held the top spot for a third straight year. Bank of America Merrill Lynch retained the second place, underwriting 12.5 percent of issues, or 552 transactions worth $91.6 billion.

Barclays Moves Up

Citigroup Inc. held onto the third spot, a 9.6 percent market share, with 364 deals totaling $70.5 billion, the data show. Barclays Capital displaced Morgan Stanley and Goldman Sachs Group Inc., jumping from sixth to fourth, with 328 issues worth $62.7 billion, an 8.5 percent share.

Financing for mergers and acquisitions may make up a greater part of bond sales next year, according to Barclays, Bank of America Merrill Lynch and JPMorgan.

“We’re already seeing evidence of an uptick in M&A financing,” said Therese Esperdy, head of global debt capital markets in New York at JPMorgan. “That was rather muted in 2010 and I’m confident we will see a more active environment next year.”