V.10:6 (257-260): Trading Bond Funds by Joe Duarte

V.10:6 (257-260): Trading Bond Funds by Joe Duarte
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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 Duarte explains.

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 bond.

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.


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 .

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