It's hard to find safety right now in markets that are indisarray, but bond traders are certainly trying to do exactlythat.

They'rebuying short-term debt that stands to lose when the Federal Reserve raises interest rates—but a hike next monthisn't as much of a concern right now. And they're dumping riskyjunk bonds faster than their high-grade counterparts, sending theyield gap between the two to the widest in almost three years.

Traders are hunkering down, buying and selling less than averageas they try to determine what's next for markets after more thanUS$5 trillion in global equity value was erased in less than twoweeks.

There's “nothing normal about these economic or marketconditions,” said Sharon Stark, chief fixed-income strategist forD.A. Davidson & Co. “We advocate patience,” since the selloffin riskier assets may deepen before the market finds its footing,she wrote in a Monday commentary.

Call it patience, or lack of liquidity, or just paralyzing fear.Whatever it is, bond traders certainly seem immobilized amid theturmoil. Fixed-income trading volume remains about 60 percent ofwhat would be expected in an accelerating decline, Jim Vogel, aninterest-rate strategist at FTN Financial, wrote in a noteMonday.

High-yield bond trading has fallen 10 percent this month versusthe same period in 2014, while the market overall has dropped 2.1percent, according to data compiled by the Financial IndustryRegulatory Authority and Bank of America Corp. Take bonds of OasisPetroleum Inc.: Trading on only 10 days this month, they've tumbled16 cents, to 76 cents on the dollar, as of 10:08 a.m.

(That said, junk-bond trading picked up a bit on Monday, asinvestors try to get rid of their energy and communications-relatedholdings in particular, Trace data show.)

As stocks from China to Europe plunge on concernglobal growth is slowing, investors are left to find havens in abond market where yields have already been suppressed by centralbanks deploying stimulus around the world.

The flight to quality has sent the yield gap between U.S.investment-grade corporate bonds and junk notes to 4.3 percentagepoints, the biggest premium to own the riskier securities sinceNovember 2012, according to Bank of America Merrill Lynch indexdata.

Demand for the safest of assets, meanwhile, is picking up, withinvestors pouring $5.6 billion into money-market funds last week,according to data compiled by Wells Fargo & Co. Yields onfive-year Treasuries dropped below 1.4 percent, the least sinceApril, even as the Fed debates increasing benchmark rates fromabout zero, where they've been since 2008.

After all, there's a time to search for yield, and then there'snow, which is more of a time to insulate yourself from losing allyour money.

–With assistance from Brian Smith in New York.

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