After a yearlong rush to safety by bond investors, Treasuries are losing some of their luster.

Since mid-March, yields on 10-Year Treasury notes have jumped nearly 20%. At the same time, corporate bond yields are falling. In the case of junk bonds, that's been especially true. The average yield on the iShares iBoxx InvesTop High Yield Corporate Bond (AMEX: HYG) exchange-traded fund has dropped around 10% in that period.

"Bond investors are clearly giving a vote of confidence to the U.S. economy by moving back into corporates - particularly high-yield," said Joe Clark, managing partner at the Financial Enhancement Group.

That's a sharp contrast from earlier this year as fears of recession and a worldwide credit crisis led investors out of corporate bonds. "Historically, when everyone thinks that a storm is coming, they run to Treasuries for cover," Clark said. "When it looks safe to come outside again, they sell Treasuries and move back into corporates."

Lately, economic data has given signals to investors that the U.S. economy might not be in as bad shape as they thought. And on March 17, JPMorgan announced it was bailing out Bear Stearns, which was flirting with bankruptcy from billions of dollars in losses related to mortgage-backed securities.

But changes in sentiment have been so sudden in the past 12 months that even with their recent sell-off, Treasury yields are still far behind where they were last summer before the credit crisis took hold. The benchmark 10-year note is yielding just around 3.9%, down from 5% last June.

Compare that with a top-rated 10-year corporate bond that's now yielding about 5.6%, up from 5.4% a year ago.

Less Volatility

"Investment-grade corporate yields held firm while Treasuries were tumbling," said Richard Romey, president of ETF Portfolio Solutions in Overland Park, Kan. "Even now, they're still way ahead. They just haven't shown as much volatility as Treasuries."

Since they're not government-backed, corporates generally pay greater income streams than Treasuries. But even within the past few months, spreads between investment-grade corporates and Treasuries remain above historical averages. "We're finding much better deals in corporates right now," said Clark, the Anderson, Ind.-based advisor. "We're preparing to shift more of our clients' assets into those types of ETFs."

He's planning on implementing those changes through iShares iBoxx InvesTop Investment Grade Corporate Bond Index (NYSE Arca: LQD).

So is Romey, who says investment-grade corporates in the past 12 months have proved to be the "steady eddies" in bonds.

"My fear is that Treasury yields fell so much in the past year that if they continue to rise," he added, "their prices will fall much harder than those of investment-grade corporate ETFs."

Several ETFs are available with varying levels of exposure to investment-grade corporate. The Vanguard Total Bond Market ETF (AMEX: BND), for example, tracks the Lehman Brothers U.S. Aggregate Bond Index. It has about 26% of its holdings in corporates.

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