DUBAI - Bahrain raised $2 billion with its first issue of U.S. dollar bonds since it obtained a $10 billion bailout from its Gulf allies last year to avert a credit crunch.

The Gulf state sold $1 billion of sukuk, or Islamic bonds, due in 2027 with a yield of 4.5% as well as $1 billion of conventional notes maturing in 2031 offering 5.625%, a document issued by one of the banks leading the deal showed on Wednesday.

BNP Paribas , Citi, Gulf International Bank, JPMorgan, National Bank of Bahrain and Standard Chartered were hired to arrange the issue.

The Bahraini government received pledges of $10 billion last year from Saudi Arabia, Kuwait and the United Arab Emirates after low oil prices pushed its public debt to almost 93% of gross domestic product.

That came after it had to cancel a planned sale of international conventional bonds as investors demanded higher yields due to concerns about Bahrain's debt sustainability.

Since the bailout, its existing bonds have jumped back, as investors know Bahrain can count on support from its wealthier allies while it seeks to repair its debt-ridden finances, even though it has a junk credit rating.

Strong demand for high-yielding securities in a global low interest rate environment meant Bahrain was able to get lower yields for its bond issues than expected.

The sukuk was initially marketed with a yield of 4.875%-5% and the conventional notes were put at 5.875%-6%.

The issuance comes amid a flurry of bond deals in the Gulf, including a $10 billion bond sale by Abu Dhabi this week, as issuers take advantage of low rates to borrow cheaply.

Bahrain is aiming to balance its budget by 2023, a target it set for itself as part of last year's bailout when it embarked on a series of reforms including further cuts in subsidies and the introduction of a 5% value-added tax.

Out of the $10 billion aid promised by Gulf allies, Bahrain received $2.3 billion last year and is expecting another $2.28 billion in 2019, the government said in May.

It is set to receive further payments of $1.76 billion in 2020, $1.85 billion in 2021, $1.42 billion in 2022 and $650 million in 2023.

(Reporting by Davide Barbuscia; writing by Lisa Barrington; editing by David Clarke) ((lisa.barrington@thomsonreuters.com;))