"We are encouraged by the strong demand for credit," Tetyevsky says.

Fees fell in 2011 because investors pulled back from the market in the third quarter as Europe's financial troubles deepened. A strong start to the year, spurred by the expectation that rates would rise, helped stoke demand for high-yield bonds and spurred corporations to act before borrowing costs increased.

"We had a very active first half when the high-yield index tightened to an all-time low of 6.75 percentage points in May, which drove issuance in that market," says Andy O'Brien, global co-head of debt capital markets at JPMorgan, referring to the JPMorgan index that measures the average spread of high-yield bonds against Treasuries. As concern about Europe increased, the spread widened to 10 percentage points in October, before ending the year at 8 percentage points, O'Brien says.

Bond issuance slowed dramatically in the second half, pushing down fees for the year. For the top five banks in the ranking, fees for high-yield debt issuance, which earns higher commission rates for firms, dropped 26.3 percent last year compared with 2010. Investment-grade fees for the five fell 9.5 percent, while commissions from western Europe dropped 21.7 percent, according to Bloomberg data.

Wheels Come Off

"The third quarter really took everyone's wheels off," says Richard Zogheb, co-head of capital markets origination for the Americas at Citigroup, No. 3 in the bond fee ranking. "It became very scary that it was possible that the European crisis could spread beyond Greece, Ireland and Portugal and encompass Italy and Spain."

The European crisis led to an increase in the issuance of bonds denominated in U.S. dollars by banks and companies outside the country — debt known as Yankee bonds.

"More than 40 percent of U.S. dollar-denominated deals came from Yankee issuers last year, and we were a clear beneficiary of that trend," says Jim Glascott, head of global debt capital markets at Barclays Capital.

There was also a rise in issuance of so-called dollar-covered bonds — mortgage-backed debt securities of which the issuing bank keeps a portion on its balance sheet, reducing risk. About $40 billion in issuance of U.S. dollar covered bonds helped Barclays Capital boost fee income last year. The market saw no volume in the securities in 2009 and $28 billion in 2010, Glascott said.

"That's a market that didn't exist before, and now we're the No. 1 bookrunner, so that's been helpful," he says. Issuance of the bonds was led by European and Canadian banks, with Australian banks entering the market at the end of last year.

In the corporate sector, the largest dollar-denominated bond deal of the year was Verizon Communications Inc.'s March sale of $6.25 billion of notes to repay part of the cost of its $1.74 billion acquisition of Terremark Worldwide Inc.

Debt worldwide from the most-creditworthy companies to the neediest returned 5.99 percent from the end of November through yesterday, compared with a 4.86 percent gain in all of 2011, according to the Bank of America Merrill Lynch Global Broad Market Corporate & High Yield Index.

"The need for yield continues to exist," says Jim Casey, co-head with O'Brien of debt capital markets at JPMorgan. "Investors can't satisfy their need for yield away from credit markets."

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