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Thursday, January 6, 2011

Government Junk Bonds

Here is the same junk bond fund (JNK) from yesterday, but this time as a ratio of US Government Bonds in the IShares Barclays 20+ Year Treasury Bond Fund (TLT).  A bullish three year inverse head and shoulders pattern or cup and handle formation (JNK is only 3 years old) has just broken out to the upside.  This might indicate that high yield junk bonds will significantly outperform Treasuries for the next year.  Remember, this chart is just a ratio, so of course both types of bonds could crater, but if that were to happen, odds are that those investors holding US Debt Obligations would take a much worse beating.

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