Junk bonds are 'flashing yellow.' Watch these warning signs

Cracks are forming in the junk bond market as investors demand higher payouts for owning the market's riskiest debt. It isn't time to ditch high-yield bonds, but investors should pay attention to the warning signs. High-yield bonds now yield 8.1%, up from 7.22% a month ago. The increase reflects a jump in yields across the curve as investors bake in more inflation from high energy prices and other pressures, including concern about the deficit — hitting nearly $2 trillion in the fiscal year that ended Sept. 30. The high-yield market is also showing stress on the credit side with spreads recently widening to levels not seen since April, according the Federal Reserve Bank of St. Louis .