The high-yield bond market has made a partial recovery, at best. Though some companies can again tap the market for new capital, junk bonds issued before the September correction continue to trade at a discount.

"The market is weaker than it was a week or two ago," said Steven A. Ruggiero, head of Chase Securities Inc.'s high-yield research. "I think that a lot of money went into the market very fast in November. We probably absorbed a lot of marginal demand, and now people are running out of cash."

The average premium over comparable Treasuries that junk bond buyers demand has roughly doubled from the 3% range in the first half.

Spreads narrowed appreciably in November but started widening again this month. Bond prices move in the opposite direction of interest rates.

Retail investors pumped huge amounts of cash into the market in November, after prices on junk bonds dropped precipitously in September. The market had a record three-week streak of more than $1 billion net in- flows into high-yield mutual funds ending Nov. 12. It was the first time that had happened in more than one consecutive week.

But in the last two weeks, money has started to flow in the opposite direction. Retail investors took $173 million from the market two weeks ago and $98.2 million last week, according to AMG Data Services.

Amid a climate of economic and political woes abroad and concerns about the impeachment of President Clinton at home, Mr. Ruggiero said he believes junk bond investors have a more realistic outlook than stock investors.

"Investors in the large-cap equity market are in denial right now," he said. "We're being more rational in the junk bond market."

Many observers also predict that economic conditions in the United States will turn against the junk bond market next year.

"Demand will not lead spreads to narrow. They will only narrow because of fundamentals," said Sam DeRosa-Farag, chief high-yield strategist at Donaldson, Lufkin & Jenrette.

Most market observers expect the default rate on junk bonds to inch up next year from this year's relatively low rate of about 1.1%. But they say it could go higher in cyclical industries and start-up high-tech firms, such as wireless telecommunications.

"I would generally try to avoid the deep cyclicals," Mr. DeRosa-Farag said. He said energy company bonds would be unpredictable and that retail bonds probably would underperform the market.

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