How to Cope with a Possible Bond ETF Bubble | ETF Trends

Market volatility, turmoil and uncertainty has sent millions of investors running to the safety of bond exchange traded funds (ETFs). If the bubble bursts, it could leave them stranded and trillions of dollars will be at stake.

Analysts and market watchers have predicting that bonds are in a bubble that’s primed to burst sooner or later. What’s an investor to do? Andrew Leckey for SLT Today reports that a bond market bubble, though still a hazy prospect on the horizon this year, could have destructive consequences. [A Slew of Fixed-Income ETFs Hit the Market.]

Here are some pointers and insight:

  • Leckey suggests easing up on fixed-rate investments for a while and, if you’re heavily into them, take time to diversify your holdings. If you do go into bonds, stick with shorter-term maturities of three to five years that let you to wait out volatility. They won’t be as hard-hit by rising rates as long-term bonds.
  • Alexander Greene for Investment U reports that long-term Treasury bonds were the top-performing asset class of the first quarter, with a total return – price gains plus interest – of 13.2%. Now what? Fear of equities is not a good enough reason to stay in bonds much longer. [What Is the Appeal of T-bond ETFs?]
  • Robert Stepelman for the Sarasota Herald Tribune reports that the U.S. bond market generally did relatively well, while the U.S. equities market presented great loss for the past six months. Broad-based foreign market indexes generally lagged the U.S. equity markets and many foreign bond markets were under pressure because of the Greek debt issue. Conservative investors have been rewarded, but the trend can’ t last forever.
  • Vincent Fernando for BusinessInsider reports that PIMCO CEO Bill Gross said bonds have seen their best days over the last 30 years, but that the next 10 years could be painting a very different picture.

Our ETF Analyzer shows that there are currently 116 fixed-income ETFs on the market today. You can find them in all types of maturities and yields, and sort by them too. Watch the trend lines and be on the lookout when interest rates rise. It may not be an imminent threat, but it’s something to be aware of.

For more stories about bonds, visit our bond category.

Tisha Guerrero contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.