Nov. 6 (Bloomberg) -- Corporate bond sales in Europe dropped 62 percent to 4 billion euros ($6 billion) this week amid dwindling demand from borrowers that have already met their financing needs for the year.

TeliaSonera AB, Sweden’s largest phone company, and cable television provider Virgin Media Inc. led sales, which shrank to a fifth of the 21 billion-euro weekly average for the past 12 months, according to data compiled by Bloomberg.

Companies raised a record 954 billion euros ($1.4 trillion) from bond markets this year as they diversified fundraising away from banks hurt by the worst financial crisis since the 1930s. Investor demand for corporate debt drove bond yields relative to benchmarks down to 1.74 percentage points, the narrowest in more than a year, Merrill Lynch’s Euro Corporate Index shows.

“We may well continue to tread water given a lot of funding is already out of the way,” said Nick Burns, a London- based credit strategist at Deutsche Bank AG. “Nevertheless, it remains a very attractive time for companies sell bonds with all-in yields around the lowest we’ve seen in 40 to 50 years.”

The all-in yield includes the benchmark government rate and the corporate bond spread. The yield on five-year German government bonds is currently 2.49 percent, down from about 3 percent a year earlier, Bloomberg data show. The yield dropped to 2.04 percent in March.

‘Grind Tighter’

Corporate bond yield spreads may shrink further as the global economy improves. U.S. employers probably cut the fewest jobs in October in more than a year, according to economists surveyed by Bloomberg News before Labor Department data today. European Central Bank President Jean-Claude Trichet said yesterday that euro-area production will recover in 2010.

“Spreads are likely to continue to grind tighter as the macro economic picture improves, though at nowhere near the rates we saw earlier this year,” said Deutsche Bank’s Burns.

Stockholm-based TeliaSonera tapped bond markets to get long-term financing at attractive rates, Chief Financial Officer Per-Arne Blomquist said in a statement. The phone company sold 600 million euros of 12-year bonds at a yield of 105 basis points over the benchmark mid-swap rate, Bloomberg data show.

Virgin Media, the U.K.’s second-largest pay-television company, sold about 715 million pounds of high-yield 10-year notes in dollars and pounds. The $600 million portion was priced at a yield of 8.625 percent and the 350 million-pound bonds at 9.125 percent, according to data compiled by Evolution Securities Ltd.

Virgin is rated at B+ by Standard & Poor’s, four steps below investment-grade status. It’s rated one level higher at Ba3 by Moody’s Investors Service. High-yield debt is graded below BBB- by S&P and Baa3 by Moody’s.

Speculative-grade bond yields in Europe have tumbled to 11.4 percent on average, less than half the record 27.8 percent in March, Merrill Lynch indexes show. The notes returned 72 percent this year.

“With such record returns this year, bond investors may be starting to close books to reduce risk, and monetize this year’s profit,” said Louis Gargour, chief investment officer at hedge fund LNG Capital LLP in London. “Issuance is therefore slowing and it could become increasingly hard for issuers to get new deals done before the New Year.”

To contact the reporter on this story: Caroline Hyde in London chyde3@bloomberg.net.

Last Updated: November 6, 2009 05:52 EST