Some people (e.g. Bill Gross) think there's a bond bubble too. As bond prices and interest rates are inversely correlated, and it's hard for rates to go anywhere but up at the moment, imho they're probably right. I don't think anyone has a good handle on what asset classes are particularly safe (or, equivalently, will yield reasonable returns over the near-intermediate term) at the moment. My best guess is that P/E ratios are still fairly sane-ish, so my investments are in stocks atm. YMMV, I am not an investment adviser, etc.
A bubble? No. A bubble is more than just "asset prices are higher than they should be".
Take stocks or real estate. The price goes up. People see the price going up. They buy, because they want to buy something where the price is going up so that they will make money. That buying increases demand without increasing supply, so the price goes up some more. That's a bubble - where the price goes up because people are buying because the price is going up (and so they think it's going to keep going up). It's a positive feedback loop.
But bonds... nobody's buying bonds because they think the price is going to go up. They're buying bonds because they think bonds are safe. But, in fact, bonds aren't very safe. The next direction interest rates will move is up; when they do, bond prices will fall. The longer term the bonds, the more the price will fall.
Note well: I am not an economist. I am not an investment advisor. This is my understanding of how things work, but it is not financial advice.
"Rates don't have anywhere to go but up" is an argument I've seen used often but it doesn't hold water. First, the 10yr is at 2.25% right now, and nominal yields have hit negative in other countries, so we could go there. Or, rates could just churn for a decade. Both of these are completely plausible scenarios.
I would note that reactionary investment allocation is generally relatively extremely expensive (due to transaction costs) for retail investors, and Fed statements aren't exactly under the radar.
Long, markets-wide, diversified positions tend to work out best for retail investors. Switching from heavy positions in one asset class to heavy positions in another tends to benefit investment firms, without reliably lowering investor risk. It's hard to guess where the market is going, and the transaction costs of frequent position changes, even at institutional investor rates, can quickly outstrip gains of a correct guess.
IMO your balance should reflect your progress toward investing goals, not trying to outguess the market.
You know better than anyone about your own goals and progress, so you can make reliable decisions based on that information.
No one knows what the market is going to do next, and even if we assume a range of predictive accuracy, you're probably low in that range unless you spend a tremendous amount of time getting and analyzing economic data. So, you can't make reliable decisions based on that information.
No, bonds are the last place you want to be right now. That potentially sharp rise in longterm rates is highly dangerous for the bond market. If rates go up, bond prices go down. I'd stay in safe stocks or cash
Traditional economic logic says that bond prices have an inverse relationship with interest rates. That means if you buy bonds now, and interest rates shoot up, the underlying price/value of that bond will plummet. This is especially bad if you have callable bonds, because the bond holder can call them at any time, forcing you to essentially receive the value of the bond at the time of the call - even if the price/value has plummeted due to increasing interest rates.
Be cautious investing in bonds, and if you do, you might consider holding them to maturity if interest rates go up and prices/value goes down (and hope they don't get called).
I personally think it's a scary time - interest rates going up will have an effect on prices of bonds, stocks, and more. So while you earn more interest if you own fixed income assets, the value of those assets decreases and you can get stuck.
That said... IMHO, the raising of interest rates... I think really needs to start happening before the artificially low rates creates a different kind of animal altogether.
