(FORTUNE Magazine) – Convinced the giddy 1980s had finally ended, small investors moved out of junk bond mutual funds less than two years ago. Now the high-yield, high-risk issues look good again. Hungry for more than the measly yields of CDs and other short-term investments, individuals poured $3.4 billion into such funds in 1991 and increased their stake by $2.3 billion in this year's first quarter. The payoff must make jailed junk czar Michael Milken swell with pride: Junk bond funds returned 35% last year, more than any other asset class save over- the-counter stocks. The gain so far this year: 8%, vs. a -1% total return on equities. Surging demand for junk has brought forth a bountiful supply as companies scurry to hawk new issues after a severe dry spell (see chart). Most have used the proceeds to retire older, higher-coupon debt or bank loans. Among this year's big issuers: cable TV company Tele-Communications, with three issues < totaling nearly $1 billion; Safeway Stores, with four totaling $800 million; and HealthTrust, a hospital chain, with a $500 million issue. Could the market be getting too crowded? Some experts think so. ''Put it this way,'' says William Veronda, longtime manager of the Financial Bond Shares-High Yield Portfolio, ''in the next two months alone there will be $10 billion of new issues offered. We're looking at one of the largest avalanches of supply ever.'' Plus, he says, the quality is deteriorating, with companies issuing more lower-rated junk. Veronda advises careful selection. Among his favorite imminent issues: U.S. Banknote, which prints food coupons, American postage stamps, and the currencies of Lithuania and Estonia.

CHART: NOT AVAILABLE CREDIT: FORTUNE CHART/SOURCE: MOODY'S INVESTORS SERVICE CAPTION: NEW JUNK ISSUES