Bond woes may yield a deeper downturn.(Chicago Tribune)

CHICAGO _ Investors usually look to the stock market for a quick reading of Corporate America's financial outlook.

But for all the recent volatility on Wall Street, nothing compares to the crash of the corporate bond market.

Overshadowed by all the breathless coverage of the daily corporate earnings disappointments and warnings _ and predictable stock price plunges _ the drop in corporate bond issuance and dramatic increase in yields carry potentially far-reaching implications for the U.S. economy.

Spooked by some high-profile credit warnings, more investors have been chasing a declining pool of Treasury bonds rather than taking a chance on corporate bonds at a time of stock market volatility and uncertainty. The premiums companies are being forced to pay investors to buy bonds are indicating a more pronounced economic slowdown than previously thought.

Yields on investment grade corporate issues in the Merrill Lynch corporate bond index reached a 10-year high in May, paying an average premium of 1.79 percentage points over Treasury bonds _ and the premium has fallen little since.

"The corporate market is in a state of disarray," said Bruce Young, president of Mesirow Financial in Chicago and head of the firm's institutional markets division. "Spreads have widened to the greatest levels I've seen."

Fears of a not-so-soft landing for the economy, global political unrest and slower growth in corporate profits are driving the higher premiums _ and the climate could get uglier from …