HEADY JUNK-BOND RETURNS ATTRACT FUNDS

Wall Street’s worst of times are ushering in some of its best of times, too — by a factor of 40 percent.

That’s the impressive return halfway through the year for recent junk-bond bets, which have soared almost overnight for their best comeback since their 1980s heyday of hefty double-digit gains.

In May alone, the year-over-year return was 25.4 percent on distressed debt to help ailing firms, according to a Bank of America Merrill Lynch report.

“This is the first big rally we’ve had since the tech crash,” said John King, an analyst at CreditSights, referring to the 2000 recession that followed the bursting of the dot-com bubble.

Long suffering as risky outcasts, junk bonds have lingered for the past decade as flat, ho-hum investments, King said.

The high price of rebuilding the economy is bringing them back as saviors — of the economy as well as for impatient investors with few places to park cash in the recession.

But rescue doesn’t come cheap. As The Post reported yesterday, United Airlines’ parent is paying a steep 17 percent interest on its latest bond borrowing of $175 million to keep the fleet operating.

And Mexican eatery chain Real Mex Restaurants and its Chevy’s unit are expected to pay interest of 18 percent on bonds that it needs to cover a $156 million loan, according to people close to the situation.

Buyout giant Kohlberg Kravis Roberts and a lending group are pricing the deal at near that sky-high rate, which would make for the highest yield since March.

Some experts expect a hoard of pent-up cash will pour into junk bonds as the payoffs continue to rise. “There’s a lot of dry powder, and no one to shoot at,” John Monaghan, a restructuring lawyer at Holland & Knight, said at a recent conference.

Out West, California’s big pension fund, CalPERS, is reviewing a plan to plow as much as 3 percent of its $169 billion fund — or about $5 billion — into distressed assets. It will reach a decision by Aug. 17.

Oaktree Capital Management is among the funds that have raised billions for distressed debt to help support crippled businesses. It pioneered junk bond funds two years ago, raising $14 billion. It is raising an additional $6 billion for a new fund.

Analysts say risks of distressed debt may not be as scary as expected because some of the investments will be packaged into assets that are guaranteed by the government’s Term Asset-Backed Securities Lending Facility (TALF).