Here we see a chart of the relative strength of high yield bonds (JNK) to investment grade bonds (LQD). Note how this relationship went haywire during the Lehman crisis in late 2008 and then bottomed out late that year and early in 2009.
The declining relative strength of JNK to LQD showed that there was risk-averse sentiment affecting the bond market: investors preferred safer yields to higher ones. Since that time, risk appetite has returned to the bond market, though not to the degree that we had before the 2008 collapse.
Notice how risk aversion has been affecting the market most recently, particularly in the wake of debt concerns in Europe. To this point, that risk aversion is a pullback in a rising market and not necessarily suggesting an overall shift in investor sentiment. Should we break the lows from the second half of 2009, however, that would suggest a more fundamental breakdown of risk appetite: one that I would expect to affect multiple markets.
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