In the month of April, the U.S. Treasury market and its exchange traded funds (ETFs) both flourished and got slammed.

With the announcement of bankruptcy by Chrysler LLC and the a surge in corporate defaults in April, junk bonds had their best performance in more than two decades, states Randall Forsyth of Barron’s.  The PowerShares High Yield Corporate Bond ETF (PHB), which has a whopping yield of 11.46%, gained 8.9% over the last month.

On the other end of the spectrum, Treasuries got slammed  as the Federal Reserve’s plan to buy over $1 trillion of government, agency and mortgage-backed securities was undercut by reduced demand by investors and the inundation of Treasury auctions to finance the budget deficit.  The iShares Barclays 20+ Treasury Bond ETF (TLT), which dropped 8.4% over the last month.

In general, corporate sectors and Treasuries move in tandem; however this case is an exception because of  wide corporate spreads and low Treasury yields.

To add to the slow demise of the Treasury market, many investors are starting to steer away from Treasuries.  Granted, these investment tools held up fairly well during the financial crisis of the previous year, but many believe that they are just not appealing.  Short-term bonds yield a small 1.9% and long-term bonds are coming under serious risk from inflation, states Brett Arends of The Wall Street Journal.

In times of deflation, Treasuries hold up fairly well.  However, in times of inflation, the minuscule returns offered by Treasuries are often eaten away and go into the red.

It is always a good idea to remain diversified, keep a balanced portfolio and watch the trend lines.

For full disclosure, some of Tom Lydon’s clients own shares of TLT.

Kevin Grewal contributed to this article.

Tags: Bond ETFs, Junk Bonds, PHB, TLT, Treasury Bonds