The average yield on US junk bonds has fallen below 4 per cent for the first time, and investors seeking refuge in ultra-low interest rates are pouring into this notoriously high-yielding asset class.

The Bloomberg Barclays u.s. high-yield corporate bond index fell to 3.96% late Monday, the sixth straight session of decline.

Under the meagre returns offered by the low-risk bond market, investors hungry for high yields are snapping up junk bonds as an alternative investment. Junk bonds are so in short supply that some money fund managers even call companies to issue bonds instead of waiting for deals to emerge. Most newly issued bonds are heavily oversubscribed, and even the riskiest CCC-rated junk bonds are popular.

Lower yields could encourage more speculative companies to enter the market, having raised more than $7 billion last week. Us junk bond issuance hit a record in January, with $52 billion priced, compared with about $60 billion so far this year.

Buyers are snapping up CCC-rated bonds, and yields on these high-yield bonds are also falling. Yields on CCC bonds fell to 6.21% on Monday, also a record low, and outperformed other markets for the third month in a row, according to Bloomberg data. The data show that the average yield on grade B notes is 4.30% and the yield on grade BB bonds is 3.05%.

The terms of the issue are so favourable that some of the riskiest types of transactions have also entered the market, such as bonds used to pay dividends to company owners and bonds that allow borrowers to pay interest on more debt.

Some expect the bonds with the lowest market ratings to continue to perform well. David Norris, head of US credit at TwentyFour Asset Management, said CCC-rated bonds, which account for the bulk of recent issuance, may be one of the best-performing credit bonds. "the strong momentum of new issuance of low-quality credit bonds is worth pondering, and there may be some good opportunities for investors with sufficient liquidity to participate," he said. "