This post was written by Minyanville contributor Fil Zucchi.

It's well known by now that the corporate bond market, from high yield to investment grade, has had a mind numbing move up, and this rally is beginning to be used as an explanation/reason why the equity markets will have no choice but to follow suit. To keep things in perspective, here are some comments from last week conference call by the Morgan Stanley (NYSE:MS) corporate credit team:

• Despite the deleveraging process many companies have undertaken, on an EBITDA/Debt ratio junk rated companies are as leveraged as they have ever been thanks to the "complete trashing" of cash flows. MS expects leverage ratios to rise even further and, therefore, from a "leverage-risk to yield" basis, junk spreads are way too tight to reward buyers for the underlying default risk.
• In the residential Option ARMs market, delinquency rates as a percentage of original balances are running higher than they were in subprime. On the other side of the ledger – and confirming what is intuitively logical – recoveries as a percentage of balances are significantly lower and falling, which will continue to put heavy pressure on home values. In the Alt-A market things are not going that well either.
• In the Commercial Mortgage Backed Securities (CMBS) world, Standard & Poor recently implemented new tests to determine the downgrade of various CMBS vintages. The test for the 2004 issues was relaxed, which is likely to spare from downgrade 65% of AAA rated CMBS which had been put on negative watch. Under the prior, stricter test, 80% of the watch list issues were in danger of downgrades. Are we really to believe that the relaxation of the testing standards for issues that are coming up for refi between now and the next two years are just a coincidence?
• What caritas the S & P showed toward the 2004 CMBS it apparently took it out on the mezzanine CMBS of 2006 and later. Most AAA mezz tranches are or will be downgraded to A/BBB- grades, while all junior AAAs tranches have gone straight to junk.

Subprime mortgage defaults peaked and will slowly begin to slide during the next two years.

But don't get excited -- option ARMs and ALT-A mortgages are now beginning to rise at a very rapid rate. According to analysts I follow, notably Ivy Zelman, the next tsunami will be larger than the one we just went through.

And the banks are not currently valuing these mortgages as if they will default at this rate.

Be sure to read all 7 reasons the stock market isn't going up any time soon.

Michael Shulman is a contributor to OptionsZone.com.