Despite their calm words, bond managers can't be sleeping well what with their worries about interest rates and inflation, the housing market and municipal bankruptcies keeping them up at night.

So just when will this bond bubble burst? Treasurys are as expensive as they've ever been; bond king Bill Gross, manager of Pimco Total Return, the world's biggest bond fund, called the end of the 30-year rally in bonds way back in October; and the Federal Reserve's program to snap up Treasurys in hopes of reviving the economy could end in June without further government action. And still nothing catastrophic has happened. But smart financial advisers and fund managers are diligently watching for signals that the end is near and so should you. Ironically, good economic news--such as an improved housing market or increased consumer spending--could be disastrous for your bond portfolio. Here then are five key signs too look for that could signal the bond market is taking a turn for the worse.

1. A rise in interest rates.

Let's face it: Interest rates can't get much lower after falling steadily for the past three decades, so a hike is coming sooner or later--and that's bad news for bonds, especially Treasurys. If employment and consumer spending improve, the Federal Reserve is likely to lift interest rates to control inflation, says Greg McBride, a senior financial analyst at Bankrate.com. Higher rates could decrease the value of existing bonds because investors would likely flock to newer issues with higher yields.

Another reason higher rates are bad for bonds is they would likely mean more competition from insured bank products, which have been earning next-to-nothing in recent years. An upward tick in rates would suddenly make certificates of deposit, money market accounts and high-yield savings accounts more attractive to older and risk-averse investors.

Longer term bonds, especially U.S. government bonds, and bond funds, would see the biggest hit if interest rates rise because over the long-haul the higher rates would diminish the value of the bonds. Something as small as a one-percentage-point hike would send the average 10-year Treasury bond down about 8%, says McBride. "If interest rates go up two percentage points, that's a 16% loss."

Investors should stay tuned to the Federal Reserve monetary policy meetings, which occur eight times a year and often reveal news about rate changes and Fed policy on Treasury buybacks. The next meeting is scheduled for March 15. And beware: Interest rates could rise even if the economy remains sluggish, experts say.

2. Signs of inflation or deflation.

Concerns about deflation have eased in recent months as consumer spending has improved, but if the economy continues to heat up, it could stimulate inflation as more dollars go toward buying clothing, food and other products. Economists are particularly concerned that this buying spree could come from abroad especially developing countries in the form of higher prices for oil and commodities.

"Inflation is to the bond market what kryptonite is to Superman," says McBride, because it erodes the value of a bonds' fixed payment.

Rates on longer term Treasurys such as 10-year and 30-year bonds are more driven by inflation expectations, says Steve Huber, manager of the T. Rowe Price Strategic Income Fund . At the end of 2010, for example, rates climbed as investors became more worried about inflation. On the other hand, deflation makes Treasurys more attractive, but could be bad news for non-government bonds because issuers may have trouble making payments. Even when businesses earn less because of deflation, they have the same bond obligations, notes McBride. Investors should keep an eye on the Consumer Price Index, released each month by the Bureau of Labor Statistics.

Delayed Bond Payments

3. Delayed bond payments.

Many states and major cities are facing a financial crisis and an enormous deficit, especially those hardest hit by the recession, including California, Illinois and Florida. Many governors and mayors are eager to slash spending, rein-in pension benefits and in some cases raise taxes. While states currently cannot declare bankruptcy and avoid paying bonds, many cities could, and some states are even litigating to avoid pension obligations.

The good news is that municipalities are unlikely to renege on bond obligations because that would make future borrowing difficult, says David C. Leduc, chief investment officer, active fixed income for Standish. More likely, they could delay payments or up the ante on future bonds to get anxious investors to invest in debt-laden states and cities. That means those with older bonds would see their values decrease as newer bonds offer better terms to attract investors.

To stay on top of the muni crisis, investors should watch for news on the housing market and unemployment, and also check credit ratings from Standard & Poor's, Moody's and other agencies. Elizabeth Fell, fixed income strategist for Barclays Wealth Americas, says to consider only bonds with an A Rating or better before investing. Also, understand the quality of revenue funding the bond. Is it backed by tax revenues, or by services that are less dependable such as public housing or a rural hospital?

4. More home sales.

No one expects a recovery in the housing market anytime soon, but when it does come it will certainly have an impact on bonds. Any uptick in home values and occupancy rates would provide additional revenues to cash-strapped states and cities, says Michele Gambera, head of quantitative analysis at UBS Global Asset Management. He says he keeps tabs on federal statistics on whether banks are lending and Conference Board numbers on durable goods. An improving housing market could lead to higher interest rates because it would be a sign that the economy is improving and the Fed which has kept rates artificially low since the recession -- would want to increase rates to limit inflation.

In the meantime, home loan defaults continue, and that negatively affects mortgage-backed bonds, says Leduc. Under some circumstances, bondholders lose some principle. Agencies like Fannie Mae that back bonds are on the hook for the credit losses, but individuals could also receive cash back sooner than they wanted especially because savings rates at banks remain low. Professionals keep a close watch on housing starts, existing home sales and the S&P/Case Shiller home-price index for increases.

5. Higher government or corporate debt.

Another thing to watch out for: U.S. and corporations piling on more debt, experts say. Investors feel safe right now with their investments in high-quality corporate bonds, but that can change quickly if those businesses decide to increase their stock value by buying back stock or borrowing to buy a competitor. "Those things are not bondholder friendly," says Leduc. Publicly traded companies are required to disclose information about their debt and share repurchases in their financial statements.

All eyes will also be on the U.S. government's handling of its soaring debt load. Investors especially those abroad could lose confidence and pull out of Treasurys if the U.S. doesn't soon address the more than $14 trillion deficit. While unlikely, "if the appetite for U.S. government debt begins to wane that would be a catalyst for a meltdown in the bond market," says McBride.

For signs that the creditworthiness of Treasurys in on the decline, institutional investors typically look at the pricing of credit-default swaps, insurance contracts that bet against government debt. A rise in their prices would signify a loss in confidence in U.S. debt, says Anthony Valeri, a market strategist specializing in fixed income for LPL Financial. But with little information on swaps publicly available to retail investors, experts recommend regularly checking guidance coming out of the credit rating agencies.