Since last November I’ve been recommending and purchasing investment grade corporate bonds in the United States, including a portion of my company’s cash liquidity. The sector crashed last September following Lehman Brothers’ bankruptcy and has since enjoyed a big rally – until recently.

Indeed, the credit crash in September was a seminal event that drove bond yields north of 7.5% in just a few days. The last time investment grade bond yields were trading at such a wide spread compared to Treasury debt was back in the early 1930s.

With most investment grade bond indices holding about 35% to 50% of their assets in mostly senior bank debt it’s vital to understand how the perception of risk has changed as the United States probably succumbs to some sort of bank nationalization.

Investment grade bond indexes have been correcting since late January and recently crossed below their important 200-day and 50-day moving averages, suggesting another correction or worse might lie ahead.

Will investment grade bank debt fall under a federal guarantee? Failure to guarantee these bonds will result in another major crash for credit markets because so many institutions, including pension funds and insurance companies, continue to hold bank debt issued by Citigroup, Bank of America and many others.

Last year, bonds issued by Wachovia defaulted following the ill-fated bank's purchase by Citigroup. In other words, Wachovia bondholders were wiped-out. The same was true for most Lehman issued bonds, particularly in Asia.

Credit spreads for this high value sector have indeed narrowed since crisis heights in October but remain historically elevated at 384 basis points, or 3.84%, above Treasury bonds. In the latest week ending February 23, the Dow Jones Corporate Bond Index has seen its yield rise from 6.38% to 6.58% -- a significant jump.

On a bullish note, however, investment grade non-financial issuance has been red-hot since December, including even FDIC-backed bank debt.

With the economic and financial landscape changing constantly amid an ongoing global credit crisis, investors should take immediate precautions in the event the United States does not provide a blanket guarantee of senior bank debt that fall under the prospects of nationalization.

It’s hard to believe the government can offer a blanket guarantee on all distressed bank bonds – even those that come under nationalization. That’s because there’s just so much of it still outstanding; Lehman Brothers had more than $160 billion dollars’ worth of debt before it failed.

Combining blanket guarantee across swathes of failed institutions will probably cost the governments trillions of dollars. Should that occur, funding costs will surge because the United States Treasury will have to expand issuance to finance a senior bank debt bailout.

My strategy is the following: If you own investment grade bonds or ETFs in this sector then place a 10% stop loss on your entry price. If that price is violated, then sell. I would not purchase these securities now in light of recent nationalization efforts abroad this month and the strong likelihood of government ownership occurring in the United States. With the rules on stocks, bonds and other assets changing constantly in this crisis you must take prudent steps to plan a quick exit strategy.

I could never have imagined that senior bank debt would default or come under suspect. But this is the reality of the world we live in and we must be vigilant to protect our assets.