Exit The Safe Haven
As investors leave the cozy confines of Treasury bonds, corporate debt rates are falling.

Falling interest rates on corporate debt have attracted companies of all stripes into bond markets to raise cash. Investment grade bond sales hit $113 billion in May, and with more than $16 billion in sales in the first week, June looks set to continue the pace. GMAC Financial Services, the car loan and mortgage lender, sold $4.5 billion in government-guaranteed bonds and pharmacy benefit manager Express Scripts sold $2.5 billion in bonds.

Companies with less-than-solid balance sheets are also welcome: Junk bond sales from the likes of NRG Energy (NRG - news - people ) and U.S. Oncology topped $5 billion in the past week.

Yet many fret because Treasury yields keep moving higher. The 10-year Treasury bond paid a 3.83% yield Friday afternoon, up from 3.6% in the last week of May and a 52-week low of 2.07%. One worry is that higher yields on benchmark government bonds will translate into steeper borrowing costs for home buyers and businesses, besides making the U.S. government’s deficit spending more expensive.

So far, the opposite has happened in the corporate bond markets, where yields are falling from heights reached earlier this year. The average junk bond yields 13.5%, according to Merrill Lynch data. That’s still high compared with rates in recent years but much better than the 18% in February. An explanation given by Federal Reserve Chairman Ben Bernanke: It appears people are taking risks again, selling ultra-safe Treasury bonds and buying corporate debt.

In testimony to the House Budget Committee on Wednesday, Bernanke acknowledged that rising yields on Treasury notes reflected worries over government debt and admonished Congress to reign in spending. But rising yields, he said, also mark a reversal of the flight to safety by investors last year and optimism about the economy. (See "Bernanke: Curb The Borrowing Binge.")

A recent note from PNC’s investment strategy team puts it in perspective: The average 10-year Treasury yield has been 3.9% in the last two years and touched a high of 5.3% in June 2007. In other words, the current 3.8% yield is slightly under the recent average. Fear and uncertainty after Lehman Brothers ( LEHMQ - news - people ) collapsed in September drove investors into Treasury securities en masse. With the economy and countries looking more stable, Treasury yields are bound to rise.