More Juice Ahead for Bonds?

10/17/2012 8:00 am EST

Focus: TRADING

Greg Harmon of Dragonfly Capital makes the case for why the bond rally is not over yet.

Yes, there is debate and discussion about the trade of the century reversing and US Treasuries finally falling in price. That is looking more and more possible as the weeks go on. In fact I am short some Treasury exposure via the iShares Barclays 20+ Year Treasury Bond Fund (TLT). But where Treasuries are rolling, other debt is still going strong. Take a look.

iShares iBoxx Investment Grade Corporate Bond Fund (LQD)

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The iShares iBoxx Investment Grade Corporate Bond Fund (LQD) remains moving higher in an ascending wedge. From the 2008 low it has given up the steep 1/8 Gann Fan for the 1/4 and then the 1/2 but still has a long way to go before reaching the 45 degree 1/1 Fan. There is nothing there to suggest a stall in the money flow into investment grade bonds with the measured move on the current leg at 125.

SPDR Barclays High Yield Bond ETF (JNK)

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The SPDR Barclays High Yield Bond ETF (JNK) looks even stronger. It also has given up the 1/8 and 1/2 Fan lines, but is holding the trendline support and moving to all-time highs. In fact a move over 40.60 carries a price target on a measured move higher to 43.60. If you are looking to invest in bonds the outlook is still bright, just don’t look at US Treasuries.

By Greg Harmon of Dragonfly Capital.

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