“After an enthusiastic start to the month, investors in high-yield, or junk, bonds are returning to the sidelines, spooked by an equities selloff and the highest yield spreads in over a decade,” writes Tom Barkley in today’s Wall Street Journal Online.

“Spreads on the yields of junk bonds over the yields of Treasury securities this week reached their highest level since January 1991 on the Merrill Lynch High Yield Master II Index.”

“Since last week, spreads on the index have jumped to 9.84 percentage points from 9.44 percentage points, surpassing the 9.63 percentage-point level hit last September in the wake of the terrorist attacks on the U.S. They peaked at 10.52 percentage points over Treasurys in January 1991 in the midst of the recession.”

“Junk yields were actually coming down at the beginning of the month, buoyed by record inflows into the asset class and a recovery in stocks. But since dipping below 13% last Tuesday, yields on the index have jumped back up to 13.49% this week amid weakening stocks and rallying Treasurys.”

“High-yield investors say they are going to remain cautious until signs of a more sustainable recovery for the economy and markets appear.”

” ‘People are fairly heavy cash, but not super-eager to put it to work,’ said Paul Ocenasek, a portfolio manager at Thrivent Financial for Lutherans.”

“While spreads are attractive, Mr. Ocenasek said he would have to see some progress on a number of fronts, including the equity markets, the economy and defaults, before becoming less cautious.”

“While bond prices have held up fairly well during the stock market’s retreat over the past few weeks, equities remain the biggest determinant for the high-yield market’s direction, say investors.”

” ‘The market continues to be very jittery, and my sense is, it’s the stock market, stupid,’ said Oren Cohen, principal at Trilogy Capital LLC.”