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By Bondsquawk:

According to a Bloomberg article, corporate bonds are under attack as investors punted lower rated credits as the European debt crisis intensified in recent weeks.

More than 17 percent of junk bonds yield at least 10 percentage points over Treasuries, up from 9.2 percent last month, Bank of America Merrill Lynch’s Global High-Yield Index shows. The jump is the biggest since the distress ratio rose 11 percentage points in November 2008, two months after Lehman Brothers Holdings Inc. collapsed. Bonds of MGM Mirage and Freescale Semiconductor Inc. joined the list this month.

U.S. distressed bonds have lost 10 percent in May, according to the indexes, as credit markets seize up amid speculation Greece and other nations in Europe with rising budget deficits won’t be able to meet their debt payments. Junk bond sales plunged this month to the lowest level since March 2009, data compiled by Bloomberg show.

While corporate spreads have improved along with stocks and euro recently as we head into the holiday weekend, the bigger picture remains that investors are still concerned as performance has been fairly negative since last month.

Junk bonds globally have lost 4.4 percent in May, on pace for the first monthly decline in 15 months and the biggest drop since November 2008, Bank of America Merrill Lynch indexes show. Investors pulled more than $1 billion from high-yield funds during the third week of May, after redeeming $2.1 billion the previous period, according to EPFR Global, a Cambridge, Massachusetts, research firm that tracks fund flows.

Investors are unloading risky assets on concern European governments won’t be able to coordinate a response to surging levels of debt from Greece to the U.K. Spain became the focus of the crisis this week as four of its savings banks said they plan to combine to form the nation’s fifth-largest financial group, while the Washington-based International Monetary Fund said the country’s financial industry “remains under pressure.”

These concerns are affecting bond issuance as corporations pull scheduled deals.

The market turmoil is curtailing companies’ efforts to borrow to help refinance $1.2 trillion of bonds and loans expected to come due through 2014, according to Bloomberg data. Speculative-grade companies have sold $7.55 billion of bonds globally this month, the least since March 2009, compared with $41.6 billion in April.

Saudi Basic Industries Corp., the world’s biggest petrochemicals maker, and Las Vegas-based Allegiant Travel Co. pulled bond deals this week, bringing the total to at least 21 borrowers that have postponed sales since April, Bloomberg data show.

While corporations wait for tighter spreads to issue bonds, keep in mind, as the article mentions, that one month doesn’t represent the entire environment.  It becomes an issue if the market is shutdown for a long period of time as is the case with Residential and Commerical securities which has not seen deal flow in a couple of years.  In the meantime, it requires watching.  It is certain that one month doesn’t represent a trend.  However, it certainly could signal the beginning of one.  Stay tuned.