Protecting Your Portfolio Against Higher Rates

12/15/2010 10:03 am EST


Thomas Aspray

, Professional Trader & Analyst

Click to Enlarge

Chart Analysis: With the close on August 27, 2010, the chart of the Treasury bond futures revealed a bearish candlestick formation, indicating that bonds could be topping and that yields were going to move higher. On the right side, we have a chart of the Vanguard Long-Term Bond Index Fund (VBLTX), one of the large indexed bond funds. During the week ending August 27, both markets moved above the starc+ bands, shown in light green on both charts and explained in more detail here, indicating that it was a low-risk time to sell but a high-risk time to buy. VBLTX has dropped 9.5% since August 27 and recently tested the starc- band.

What It Means: The intermediate-trend analysis favors lower bond prices and higher yields over the coming months. Both markets are now close to stronger support and the starc- bands. This suggests that T-bonds and VBLTX are likely to stabilize or rebound over the next three to five weeks.

How to Profit: If you are looking to reduce your position in long-term bond funds such as VBLTX, you should be able to get a better price in the next few weeks. The T-bond futures could rebound to 124-125 and VBLTX could reach the $12.20-$12.40 area, which would present a better selling opportunity.

Tom Aspray, professional trader and analyst, serves as senior editor for The views expressed here are his own.

Related Articles on STRATEGIES

Keyword Image
Dogs of the Dow
12 hours ago

The Dogs of the Dow strategy seeks to take advantage of investing in well-established, blue-chip com...

Keyword Image
6 Best Stocks Yielding Over 5%
10/11/2018 5:00 am EST

Using our proprietary dividend screener, I found hat nearly 1,100 individual equities offer yields a...