UN Unilever NV

Investors have snapped up more than $100 billion of investment-grade bonds so far this month, making September the busiest month for new issuance this year as highly rated companies take advantage of low interest rates to borrow cheaply.

High-grade corporate bond sales have surpassed the previous monthly high of $102.3 billion in March, though the year-to-date total trails last year's record pace. Bankers forecast as much as $20 billion this week alone after BP PLC (BP, BP.LN) offered $3.5 billion of debt Tuesday and others sold $11 billion on Monday.

Corporate treasurers at Microsoft Corp. (MSFT), Johnson & Johnson (JNJ) and other highly rated industrial companies--that is, not banks, which are frequent bond issuers--have been stockpiling cash to fund future opportunities and perhaps to reward shareholders with share buybacks or dividends.

"These issuers really care about the fixed-rate cost of debt and what they pay...to hold rainy day money when it is not in use," said Jonny Fine, head of investment grade syndicate at Goldman Sachs.

A steady decline in borrowing costs--the most recent being Microsoft's ability to sell $1 billion of three-year notes at an interest rate of less than 1% last week--is behind the boom, and the market has been able to absorb the supply seemingly without indigestion. So what gives?

Risk-averse investors seeking to avoid stock market volatility have been bidding up the price of U.S. Treasury securities all summer long, steadily driving down their yields, which move inversely to price.

That led others to turn to high-grade corporate bonds in search of higher returns. The demand has let companies cut their borrowing costs even as they borrow more. Andrew Karp, head of investment-grade debt syndicate at Bank of America Merrill Lynch, said the cost of money is "materially more attractive than the previous quarter."

September is traditionally a high-volume month because investors return from Labor Day eager to put money to work after summer. It was doubly busy this year because issuance all but dried up after Europe's sovereign debt crisis in the spring. There was also less merger and acquisition activity in the first half, which eliminated a chunk of the normal need for financing.

That changed after the release of the European stress test results in July, which calmed investors' nerves and encouraged issuers to come out with all that pent-up supply, said Karp.

"The first quarter is normally the busiest as people think about doing their funding then and the second quarter follows on from that," he said. "So this is unique in that the third quarter will be bigger than the second."

Additionally, some deals may have been brought forward because of November's mid-term elections, or because of the growing acknowledgement that there may not be a double-dip recession after all.

"Uncertainty regarding the election outcome and potential changes to tax policy have prompted issuers to accelerate funding plans," said Peter Aherne, head of capital markets and syndicate at Citigroup.

Demand still outstrips supply, for now. Lipper FMI said that inflows into U.S. corporate investment-grade debt mutual funds and exchange-traded funds totaled $872.2 million last week, up 0.24% on the week before.

The funds gained nearly half a percent from the prior week, showing that high-grade bonds are appreciating in value even as more debt is being sold at historically low yields.

High-grade bonds have produced a total return of 10.3% year to date, well above the long-term average of 6% for the asset class, said Edward Marrinan, head of credit strategy at Royal Bank of Scotland. But it's a gift that may not keep giving because more and more investors say they have sunk as much in bonds as they can under their risk mandates and return targets.

"As yields fall, it simply does not make sense for every investor to continue to buy investment-grade new issues," said Marrinan. "Every bit tighter spreads go, every bit more that yields fall, and every additional month of record supply stretches that premise."

Ashish Shah, co-head of credit at AllianceBernstein, said investors like him prefer to spend a baseline amount and wait to see if returns are sufficiently attractive before committing any more. "If issuance continues to be robust," he said, investors will exhaust their baseline investments and then "go on 'strike' until yields are more attractive."

As of Monday, the high-grade tally so far this year was $597.9 billion, according to Dealogic, which began keeping records in 1995. That's about 26% off the dollar amount to this point last year but is up 42% in terms of the number of deals coming to market.

Excluding government-guaranteed bonds, however, issuance this year is up 4% in volume terms and 62% by deal count. More may be coming: In the last few days there has been merger-and-acquisition deal news from big companies such as Wal-Mart Stores Inc. (WMT), Unilever PLC (UL) and International Business Machines Corp. (IBM).

-By Katy Burne, Dow Jones Newswires; 212-416-3084; katy.burne@dowjones.com

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