Investors need to be wary of fixed income overall and municipal bonds specifically, says Christopher Ryon, fixed-income portfolio manager and managing director at Thornburg Investment Management.

"Fixed income products are overvalued here," he told CNBC's "Power Lunch" on Tuesday. "You have to look pretty hard to find parts of value in this market."

Real yields are extremely low today, providing little margin of safety when interest rates rise, he said. So Ryon suggests investors be prepared for increased volatility.

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"Investors have to be diversified by asset class, and that means owning cash," he said.

Credit spreads are narrow, which means "it's a great time to be an issuer but not a great time to be an investor."

Ryon is wary of the Fed's accomodative policy in an environment where jobs are being added to the economy at a healthy rate. "They have to normalize interest rates; that would push base level yields up and allow spread product to revalue itself," he said.

When asked if this could end badly, Ryon answered, "We believe it will."