So while the stock market loses its mind, the corporate bond market is starting to heal.

An average $17.1 billion of corporate bonds traded daily this month, following $17.7 billion in January, according to the Financial Industry Regulatory Authority. The business is up from last year’s low of $9.4 billion in August and reached the highest level since February 2007, Finra data show.

“We saw just dramatic increases in our corporate business,” said Dan Leland, head of taxable capital markets at Dallas-based Southwest Securities, a unit of SWS Groupo Inc. “One of the last places you can get an attractive yield with relative safety is in the corporate arena. The equity markets just continue to deteriorate.”

Corporate bond trading is accelerating after the recession pushed investment-grade yields to 9.3 percent in October, the highest in 17 years, according to data compiled by Merrill Lynch & Co. Investors are betting yields are high enough to compensate for defaults that Moody’s Investors Service forecast will rise to 16.4 percent by November, the highest since the Great Depression and about three times the current rate.

Yields fell as low as 7.38 percent this week, according to Merrill Lynch’s U.S. Corporate Master index. Speculative-grade yields declined to 18 percent from a record high of 22.7 percent in December.

Record Sales

An increase in corporate bond sales also fueled trading. Borrowers sold $224 billion of corporate bonds this year, up 58 percent from the same period in 2008 and 43 percent ahead of the record pace set in 2007, Bloomberg data show.

High-yield, high-risk, or junk, bond sales increased to $5.35 billion in January, the most since June. Bonds rated less than Baa3 by Moody’s and BBB- by Standard & Poor’s are considered below investment grade. ...

“It’s been a good environment to be in the corporate bond cash trading space,” said Tim Cronin, head of the fixed-income group at Jefferies Group Inc. in New York. “Demand for corporates in general is very strong.”

Of course, this could be a false dawn, but often the bond market starts improving in advance of stocks.