Fear is overpowering greed in the $7.6 trillion U.S. corporate bond market, with investors pricing in the biggest reversal in credit quality in more than two decades as the economy falters and Europe's debt crisis worsens.

While Moody's Investors Service raised the ratings on 12 investment-grade companies in August and lowered seven, relative yields on corporate debt jumped more than half a percentage point, the third-largest increase since at least 1989, Deutsche Bank AG strategists say. At no point in at least 22 years has the difference between bond spreads and the ratio of upgrades to downgrades been greater, according to Deutsche Bank.

The divergence between ratings and yield spreads underscores the division between investors over whether the slump will prove fleeting or mark the end of a rally that produced returns of 46 percent on average since 2008. The bulls bet that companies, which have $1.91 trillion in cash and other liquid assets on their balance sheets, can withstand U.S. unemployment at 9 percent and growing headwinds from Europe.