Trading Bond Funds
by Joe Duarte
Bond funds have become popular investment vehicles for income-oriented investors. The bond market,
however, is often much more responsive to news events, especially in times of high government deficits
and international markets, than the stock market is. Therefore volatility is often present and can be
extreme. As a result, technical intermarket analysis can be a useful tool in trading the bond market. Joe
Traders and investors must have an excellent knowledge of the underlying conditions that affect this
market. It is virtually impossible to anticipate news events and how financial and commodity markets
will react to them. By using key indicators that reflect the expectations and the sentiment of influential
market participants, individual investors and traders can enhance bond fund returns by timing aggressive
zero-coupon bond funds. I use the Benham Target 2020 fund as a proxy for the U.S. 30-year Treasury
Because markets often trade based on the expectations and perceptions of the participants, I use
indicators that reflect the views of large interests, such as international corporations, smart speculators
and large institutions. These indicators meet those criteria.
GREAT EXPECTATIONS ?
The average maturity in days of money market fund portfolios reveals the expectations of a very large
group of well-informed interest rate watchers, short-term money managers . Their knowledge of the
short-term domestic and international debt obligations market, both government and corporate, is
reflected in the length of maturity of their portfolio. When they expect higher interest rates, they decrease
the length of the maturities to escape holding low-yielding assets for prolonged periods and vice versa.
This indicator is reported weekly in Barron's, Investor's Business Daily and The Wall Street Journal .