NEW YORK — A firmer tone across credit markets Monday is allowing companies to borrow nearly $6 billion, including two banks that sought financing to pay back government-bailout funds.

KeyCorp sold its 10-year senior unsecured medium-term notes, and SunTrust Banks Inc. sold a new five-year senior unsecured holding company note with proceeds earmarked to repay funds borrowed under the Troubled Asset Relief Program, or TARP.

Those deals follow the Federal Reserve's completion of a second round of stress tests for the nation's 19 largest banks that gave the green light to many institutions seeking to repay government funds issued under the rescue program.

"We anticipate a flurry of debt issuance from the institutions that have been permitted to take capital actions following the completion of the 2011 Comprehensive Capital Analysis and Review," according to Tom Murphy, sector leader and portfolio manager at Columbia Management in Minneapolis.

A majority of major banks already repaid TARP borrowings. SunTrust is the last of the major banks to do so.

"The timing is simply due to the Fed giving each bank permission to do so," said Anthony Valeri, fixed income strategist at LPL Financial in San Diego, which manages about $280 billion in assets. He said the banks' timing follows "the Fed's seal of approval" and takes advantage of positive sentiment, as the Fed news was good for investors of both bank stocks and bonds.

KeyCorp will combine the proceeds from Monday's $1 billion debt offering with the $625 million in funds it raised through its sale of shares earlier this session and buy back the Series B fixed rate cumulative perpetual preferred stock it issued to the U.S. Treasury under TARP. SunTrust's plan is in the same vein. It plans to repay a portion of its $4.9 billion aid tab with $1 billion each in stock and debt sales.

SunTrust sold its $1 billion five-year offering with a risk premium of 160 basis points over Treasurys to yield 3.608%. KeyCorp priced its 10-year with a coupon of 5.10% to offer a risk premium of 180 basis points over Treasurys.

"The results of the test remove one more fundamental overhang from bank credit quality and should serve to accelerate the process of spread tightening as well as short term equity outperformance going forward," according to Guy LeBas, chief fixed income strategist at Janney Montgomery. LeBas said he believes fundamental credit quality for the banking sector is improving, "in large part because of the proactive regulatory structure which seems to have taken over from the pre-2008 passive regime."

The market for new bonds in the U.S. was severely hampered last week in response to a rise in volatility. Supply volume fell more than three-fourths from the previous week as a result of uncertainty about the nuclear disaster in Japan and simmering tensions in the Middle East and North Africa.

But it seems sentiment has shifted, even with increased violence in Libya amid a fresh round of airstrikes, as a clearer picture of the Japan nuclear situation emerges.

The bonds may or may not prove popular with investors.

Murphy said that while the market may view the CCAR results as a system-wide stamp of approval, "our decisions to purchase or not, as always, will be made on an institution-by-institution view of their underlying fundamentals and associated relative valuations."

Still, neither Suntrust not KeyCorp has a mountain of debt outstanding, so new issues from each might be appealing to a money manager simply looking to diversify holdings, Valeri said. "However, on a sector basis, we continue to find financial debt attractive within the corporate bond market."

Additional issuers of high-grade debt Monday include Quest Diagnostics, Daimler Finance North America and Entergy Louisiana.

The Investment Strategy Committee at Hartford Investment Management thinks the high-grade issuing landscape will remain supported. "Top-line company growth continues to improve, led by strong secular emerging market demand and stable-to-modestly improving U.S. and European economies," the committee wrote in a report to clients.

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