The bond market has been on a long bull run for about 30 years now, but the salad days may soon be winding to a close. Concerns about inflation and corporate debt coming do could hit exchange traded funds (ETFs) right in the solar plexus and investors need to look out.

Bonds of all shape and size – munis, Treasuries, junk and corporate – have long been in favor with investors.

With record-low interest rates poised to move higher, inflation looming and the sovereign debt crisis in Europe threatening to spill over, the great bond rally may soon falter. We need to be prepared to make moves as warranted.

The junk bond market in particular could be set for a tumble. With huge bills about to hit corporations and the federal government around the same time, the worry is that some companies will have trouble getting new loans, spurring defaults and a wave of bankruptcies, says Nelson D. Schwartz for The New York Times. [4 Reasons Bond ETFs Still Have Appeal.]

Sovereign debt aside, the approaching scramble for corporate financing could strain the broader economy as jobs are cut, consumer spending is scaled back and credit is tightened for both consumers and businesses. And as inflation continues to loom like a dark shadow, investors are pondering if it is time to exit the bond market. [Why Short Treasury ETFs Are Being Watched.]
Is it time? Let your exit strategy determine that for you. The strategy we use is exiting when a position has gone 8% off the recent high or below its 200-day moving average. You can read more about following trends in The ETF Trend Following Playbook.

For more stories about bonds visit our bond category.

  • iShares Barclays Aggregate Bond (NYSEArca: AGG)

  • iShares Barclays 1-3 Year Treasury (NYSEArca: SHY)

  • Vanguard Short-Term Bond (NYSEArca: BSV)

  • SPDR Barclays Capital High Yield (NYSEArca: JNK)

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

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.