Investors have bailed out of junk bond ETFs such as the iShares iBoxx $ High Yield Fund (NYSEArca: HYG) this month like there’s no tomorrow, the latest example of the “risk-off” mentality that has swept through financial markets amid renewed fears about Europe’s debt crisis and slowing U.S. growth.

HYG has suffered redemptions of more than $600 million so far in June and, counting the swooning prices in the junk bond market this month, the ETF’s assets under management have fallen more than 9 percent so far this month. More than $500 million of those outflows have come in the past two weeks, according to data compiled by IndexUniverse.

While accelerating redemptions and falling prices in the world of junk bonds may seem a bit much, high-yield debt has long been considered the debt market’s equivalent to the risk and volatility investors encounter in the world of equities. Junk bonds were quick to rebound from the market crash three years ago and, as stocks have wavered recently, so too have funds like HYG or the SPDR Barclays Capital High Yield Bond ETF (NYSEArca: JNK).

“It’s seems like people are getting out of things that are perceived as riskier assets and into things that are less risky,” Paul Weisbruch, an ETF trader at King of Prussia, Pa.-based Street One Financial, said in a telephone interview.

“Look at TLT—it’s hitting a new high; and SHY—it’s hitting a new high too,” Weisbruch added, referring to two popular U.S. government debt ETFs, the iShares Barclays 20+ Year Treasury Bond Fund (NYSEArca: TLT) and the iShares Barclays 1-3 Year Treasury Bond (NYSEArca: SHY).

Redemptions in JNK have totaled almost $470 million since the start of the month, and the returns on the fund have fallen 3.4 percent in the past month. HYG has meanwhile lost 2.7 percent of its value over the same period, according to data compiled by IndexUniverse.

The price of safe-haven bond ETFs like TLT or SHY have risen 0.9 percent and 0.3 percent, respectively.

Trading At A Discount

Because the junk bond market is relatively illiquid, some of the selling in HYG resulted in the fund’s price trading at a discount to its net asset value amid mounting outflows, as IndexUniverse Research Director Dave Nadig and its President of ETF Analytics Matt Hougan discussed in a recent podcast.

On June 16, for example, when HYG suffered redemptions of almost $63 million, HYG traded at a discount to its NAV of about 2 percent, according to Hougan.

The following day, when the fund lost another $180 million to redemptions, the ETF traded at a premium.

“It should trade at a slight premium to its NAV, but we’ve had plenty of instances in the past where these [junk bond] funds have traded at a discount,” Hougan said in the podcast. “The arbitrage mechanism just doesn’t work perfectly enough in the junk bond space because of the illiquidity of the underlying.”

“They do that when people sell out, and then they bounce back. It neither means that it was a mini-‘flash crash,’ as I saw one histrionic website suggest, or that junk bonds are going to zero, because as likely as not, these people were selling at the wrong time,” Hougan added.

Weisbruch said that while a big seller could theoretically orchestrate a big trade to minimize the possibility of causing a fund like HYG to trade at a discount to NAV, sometimes sellers don’t have the luxury of spacing out the trade over time or having the transaction executed by a market maker with deep enough pockets to carry off the trade without attracting the attention of other market makers.

“What ends up happening is that when the whole Street sees mass redemptions, and big trades hit the tape, everyone who’s making markets kind of widens out their markets a little bit more, because you really don’t know if the seller is done,” Weisbruch said.