Monday, March 29, 2010

Bonds

In today's column I look at bonds, a potential breakdown and a return to sanity in the corporate bond market. What I mean by that last part is that corporates have gone a different way than Treasuries, which is odd since corporates are usually priced off Treasuries, adding a little risk premium in the form of higher yield.

Apparently, the market thinks the gubmint is a riskier proposition than even a junk bond. Are you listening Mr. Treasury Secretary? Congress? (both sides)?

Rates are going up. It is just a matter of when and I mean that on the scale of weeks, not months.

Will be on the road this week so posts here will be infrequent. Happy Holidays to all!

1 comment:

Will said...

Hey Mike,

I've actually been watching the iBoxx High Yield etf, or HYG as part as kind of an animal spirits gauge, which is more speculative than the LQD. I think you can make a pretty decent case that it's topped.

I prepared a chart in Google docs:

https://docs.google.com/leaf?id=0B-eRctSn-7nNZDM3ZmQ2N2ItMTczNy00MDRlLTlkNmQtYmIwYzg2MzZmODRm&sort=name&layout=list&num=50

It looks like a counter trend ABC rise complete with ending diagonal following a 5 wave decline from the top in 2007. The declining momentum supports that a C wave was completed rather than a 3rd wave. Notice too how it stops almost on a dime at the 61.8% retracement level. If you drill down to intra-day periods the waves aren't as clear, but the decline from the January high looks much more impulsive than the rise since the February low. At least that the way I see it... Like you said... bonds tend to lead the stock market... going down?