UPDATE 2-US 1st-half corp bond sales fall-Thomson Reuters

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By Dena Aubin

NEW YORK, June 30 (Reuters) - U.S. high-grade corporate bond sales fell in the first half as financial firms shifted issuance to government-backed debt, while junk bond sales surged as risk appetite returned, data showed on Tuesday.

Excluding government-backed sales, investment-grade corporate bond sales fell to $384 billion from $503 billion a year earlier, according to Thomson Reuters data.

U.S. junk bond sales rose to $58 billion from $31 billion a year earlier.

JP Morgan Chase & Co (JPM.N) was the lead bookrunner for high-grade corporate bond sales in the first half, followed by Bank of America Merrill Lynch (BAC.N). Bank of America was lead bookrunner for high-yield bond sales, followed by JP Morgan Chase.

In the high-yield market, powerful cash inflows, which increased as the market rallied, were a key factor behind the strong issuance, said John Cokinos, head of high-yield capital markets at Bank of America Merrill Lynch.

"Success begat success in the marketplace," he said. "Deals traded well, priced well, investor demand increased, mutual fund inflows increased, and we had a very robust technical environment."

RECOVERING FROM CREDIT CRISIS

High-grade issuance totals were distorted by a shift of financial issuance in the first half to the Temporary Liquidity Guarantee Program, created to give banks access to low-cost financing during last year's financial crisis. Debt sales under that government program are guaranteed by the Federal Deposit Insurance Corp and carry top AAA ratings.

Counting $160 billion of government-backed issuance in the first half, high-grade bond sales by U.S. corporations were actually higher than a year earlier.

Issuance was healthy partly because borrowers were catching up after last year's market dislocations and prefunding some financing needs while demand was good, said Jim Merli, head of U.S. fixed-income syndicate at Barclays Capital.

"April, May and June were all very positive months for the credit markets in terms of excess return performance and therefore the investor appetite continues to be strong," he said. Excess returns refers to extra returns over those on U.S. Treasuries.

Demand for corporate debt revived after the Federal Reserve in December cut interest rates to near zero, nudging investors into riskier assets in a search for yield.

MARKET REOPENS TO RISK

As riskier debt rallied, the high-yield bond market attracted torrents of investor cash, opening financing to lower-quality issuers.