As interest rates are set to rise, investors should position themselves away from bonds to avoid being caught in a severe fall in prices, Dan Deighan, founder of Deighan Financial Advisors, told CNBC Tuesday.
"My biggest fear is the bond market. There is going to be a meltdown in the bond market," Deighan said.
"It's time to get out of bonds," he added.
The US Treasury is auctioning $118 billion in coupon securities this week; a $42 billion auction of five-year notes is scheduled for later Tuesday.
On Monday, an auction to sell $44 billion in two-year US government debt attracted only tepid demand; yields at the auction were above expectations. Deighan said this shows investors that it is best to move away from bonds.
"I think it's clear with what's been happening in December that it's time to (exit bonds), the yield curve is steepening," he said.
"There's a bubble (in bonds) and I think that bubble's going to burst," Deighan added.
Those who don't get out of the bond market now will find out that a bond portfolio is harder to liquidate than a stock portfolio, he warned.
But the economy will grow strongly and will withstand a rise in rates, Robert Brusca, chief economist at Fact and Opinion Economics, said.
The Federal Reserve would create a term deposit facility which will allow financial institutions to earn interest on loans of longer maturities to the central bank, to soak up excess liquidity from the markets.
Currently, the Fed pays interest on banks' overnight deposits.