With interest rates on the rise, it's a good time to shift some of your Treasury holdings into municipal and corporate bonds, says Kathy Jones, fixed-income strategist for Charles Schwab.

Munis have been buffeted by Detroit's declaration of bankruptcy in July and worries that Puerto Rico won't be able to pay back its $70 billion in munis.

But so far this year, muni bond funds have surrendered only about 2 percent, Money Magazine reports. Moreover, less than 1 percent of muni issues are in default, and state and city finances are on the mend.

Editor’s Note: Obama’s Budget Takes Aim at Retired Americans

"Take advantage of the jitters," the magazine says.

A 10-year triple-A-rated muni yielded 2.84 percent Wednesday afternoon, matching the yield of a comparable Treasury. But the muni has a taxable equivalent yield of 5 percent for taxpayers in the highest bracket.

Some investors are opting for junk bonds in a search for yield. But issuance of sub-investment-grade bonds with easier--than-usual repayment terms hit a six-year high for the first 10 months of the year, Money reports.

"That tells us the sector is a little overdone, and high-quality [corporate] bonds are more compelling now," says Jones.

The bond market is now highly focused on whether the Federal Reserve will begin to taper its quantitative easing at its meeting next week. Some experts say the congressional budget agreement reached Tuesday raises the chances.

"It would have to slightly increase the odds of a December taper," William O'Donnell, head U.S. government-bond strategist at RBS Securities, tells Bloomberg.

Editor’s Note: Obama’s Budget Takes Aim at Retired Americans

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