$LQD in Rising Wedge Around 2003 Peak (10y Yield, C0A0 Spread)

Not much has changed since my previous post on bonds on August 23. $LQD, the iShares iBoxx Investment Grade Corporate Bond ETF, is trading at 112 which is 4.4% away from the 2003 high (117) and up 47% from the October 2008 low. It is trading in a rising wedge which should be watched closely. Friday saw some interesting "flash crashy" action on big volume which sent $LQD down 9% to 101 at one point. See hedge accordingly and zero hedge blogs. The trades below $108 were considered erroneous and cancelled by the NYSE.

So how does the story end with bonds? If you're "balls to the walls" bearish, you have to time the reversal perfectly. I'll be watching for Treasury bond volatility (via MOVE Index) or widening credit spreads which could catalyze a retracement. If quantitative easing by the Fed combined with growth/deflation fears push the 10y Treasury yield down to 2% support, LQD could retest the 2003 high of 117 (less any credit scares that could re-price default risk and freak out spreads). I'd rather watch for a rising wedge breakdown with volatility.

Below I gave an update on LQD's key statistics, technicals on LQD using multiple time frames, the 10-year Treasury Note yield chart, BofA/Merrill Lynch U.S. Corporate Master Index Option Adjusted Spread to Treasuries (C0A0) chart and a snapshot of the US Investment Grade CDS Index via CDR.

John Paulson of hedge fund Paulson & Co, Jeremy Siegel of Wharton and Tom Lee, Chief U.S. Equity Strategist of JP Morgan, all said in some form that bonds are either in a bubble or should be sold. I agree, the 30 year bull market is over, but can it overshoot? Goldman and Nomura say no.

LQD's Maturity as of 9/30/2010

0-1 Years: 0.00%
1-5 Years: 23.86%
5-10 Years: 46.17%
10-15 Years: 0.61%
15-20 Years: 0.24%
20-25 Years: 3.38%
25 Years+ 24.46%
Average 12.28 years**

Yield as of 9/30/2010

30-Day SEC Yield: 3.88%
Average Yield to Maturity: 3.89%
Distribution Yield: 4.48%
12-Month Yield as of 9/30/2010: 4.81%

Fundamentals as of 9/30/2010

Weighted Average Maturity: 12.28 yr**
Weighted Average Coupon: 5.90%
Effective Duration: 7.40**
Standard Deviation (3 year) as of 8/31/2010: 10.71%

Holdings, 5%+

Banks: 25.93%
Oil & Gas Producers: 8.84%
Fixed Line Telecommunications: 8.74%
Media: 7.89%
Pharmaceuticals & Biotechnology: 6.38%
Financial Services: 5.76%

Source: iShares

LQD since 2003 (Charts courtesy of FreeStockCharts.com)

LQD Daily Chart, uptrend pierced on Friday

LQD 1-Minute Chart (flash crashness)

LQD weekly chart from 2006

10 Year Treasury yield @ 2.52%. Testing a descending channel with strong downtrend and two potential floors.

The U.S. Corporate Master (C0A0) Option Adjusted Spread (OAS) fell significantly. Do spreads widen at some point or do rates rise in tandem with risk free? Courtesy of BofA/Merrill Lynch.

The US Investment Grade CDS / CDR Liquid 50 NAIG Index is trading in a symmetrical triangle. Chart courtesy of Credit Derivatives Research.