For over 30 years, interest rates have declined steadily and are now about as low as they can get. Wall Street experts have been calling this trend “the bond bubble” because such low rates have caused a hike in bond purchasing.

CNN Money survey of strategists and managers

We may be nearing the end of the interest rate decline, however. According to a CNN Money correspondent, “nearly 40% of the 32 investment strategists and money managers surveyed by CNN MONEY think that interest rates will begin to rise in 2013, and another 30% say the shift will begin in 2014.”

Bond values decrease with increase in interest rates

What does this mean to investors? Senior investment analyst of BMO Private Bank Jeff Weniger says, “[R]ight now it seems that all the stars are aligned for interest rates to rise. . . . What matters is that you’re not invested in bonds when they do rise.” This is because bond values decrease with higher interest rates.

Choose short-term bonds for investment

Another problem with bonds is that it’s become a crowded marketplace. Ryan Detrick, a senior technical analyst with Schaeffer’s Investment Research advises, “[W]hen the crowd thinks one way, you might want to go the other way. Should you have some bond exposure? Yes. But should you be overweight bonds? Absolutely not.” If you are going to invest in bonds, experts in the field suggest you choose bonds with short-term maturation.

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