Liquidity draining? Volatility and fear returning? Inquiring minds want to know

One of the hallmarks of this market has been a flood of liquidity, aided and abetted by extreme risk-taking. But several measures of liquidity and risk appetite appear to be flashing yellow. To whit:

* The VIX -- a volatility indices that track options activity, and which can be used as a rough gauge of investor fear and/or greed surged during the February market swoon. Then it came back down ... but notably did NOT drop below its pre-February level. Today, in fact, the VIX is up more than 2 points to 16.31. A chart of the VIX also shows a nice rounded bottom, indicating that maybe, just maybe, more fear and risk is being priced into assets after a three-and-a-half year downtrend.

* The carnage in the subprime mortgage market has started to spill over into the commercial mortgage market and to some degree, the high-yield corporate bond market. Bloomberg had a good story today about how junk bond conditions are getting a bit tighter, with Thomson Learning, a textbook and testing unit of Thomson Corp., cutting the size of its bond offering and paying more interest on its proposed loan. If spreads on high-risk debt over Treasuries increase, it will put the squeeze on credit availability at the margins.

* Then there's the Blackstone Group IPO. Yes, it is set to close above its $31 IPO price. But from an early intraday high of $38, it has sold off and sold down to the $35 and change area. The overall market has rolled over too. And another IPO -- a health care real estate company owned by CIT Group, flopped, losing as much as 13%. The size of the deal had been cut and the shares were priced at the low end of the range spelled out in earlier filings.

* One of the most overvalued asset classes, commercial real estate, has been coming back to earth, as I have noted on this blog before.

* Then there's the yield curve. The spread between 2-year and 10-year Treasuries is widening out quickly, to about 21 basis points. That's a sign of flight-to-quality buying in the short end of the curve.

These are all just individual data points that may ultimately add up to nothing. But they are worth noting because they are out of character with the action we've seen in the markets for many, many months.