Sales of dollar junk bonds have hit all-time high levels in 2009, as issuers rush to tap strong global investor demand after a year in which the asset class has produced record returns.

Total issuance so far this year of high-yield bonds, commonly known as junk, last week topped $144bn, passing the previous high of $143bn reached in 2006, according to Dealogic.

This marks a big reversal from last year, when investors shunned this corner of the credit markets.

Returns on junk bonds this year are running at 56 per cent, according to a Merrill Lynch index, easily beating the previous record of a 39 per cent return in 1991.

The rally has taken many analysts and policymakers by surprise. Earlier in the year there was widespread concern that the sector would be ravaged by corporate defaults. Moody's Investors Service, for example, forecast that defaults would peak at 16.4 per cent among global companies with high-yield ratings.

Since then, the default rate has risen, and in November it was running at 12.7 per cent, or 250 defaults.

However, Moody's now thinks that this global default rate has peaked and will fall sharply next year, to about 4 per cent. Other forecasters predict a similar path.

These projections, coupled with government support measures for the capital markets, have sparked a big rally in junk bond prices, with an associated fall in yields.