The full-bridge inverter, widely used for single-phase photovoltaic grid-connected applications, presents a leakage current issue. Therefore, an AC bypass branch is introduced to overcome this challenge. Nevertheless, existing modulation strategies entail drawbacks that should be addressed. One is the zero-crossing distortion (ZCD) of the AC current caused by neglecting the AC filter inductor voltage. Another is that the system cannot deliver reactive power because the AC bypass branch switches at the power frequency. To address these problems, this work proposes an optimized hybrid modulation strategy. To reduce ZCD, the phase angle of the inverter output voltage reference is shifted, thereby compensating for the neglected leading angle. To generate the reactive power, the interval of the negative power output is calculated using the power factor. In addition, the freewheeling switch is kept on when power is flowing into the grid and commutates at a high frequency when power is fed back to the DC side. In this manner, the dead-time insertion in the high-frequency switching area is minimized. Finally, the performances of the proposed modulation strategy and traditional strategies are compared on a universal prototype inverter. Experimental results validate the theoretical analysis.