BOND YIELDS AND INDUSTRIAL COMMODITIES ARE RISING -- COMMODITY MUTUAL FUNDS

T-NOTE YIELDS OVER 50-DAY AVERAGE... The yields on T-bonds and notes are continuing to rise. A couple of weeks ago the 10-year T-note yield was testing its 200-day moving average. It bounced off that line and has now risen back over its 50-day average. When yields are rising, prices of T-bonds and notes are falling. This is to be expected in a climate of a weak dollar, rising commodity prices, and a stronger stock market. Rising commodity prices hint at some inflation and are normally associated with rising yields. The fact that industrial commodities (like copper) are leading the commodity rally also hint at a stronger global ecnonomy. That's good for stocks, but bad for bonds. Chart 2 shows that Industrial Metals Prices continue to set new yearly highs -- even as precious metals are correcting. While precious metals are more closely to trends in the U.S. dollar, industrial metals are more closely tied to the direction of the global economy and direction of long-term interest rates. Strength in industrial commodities also explains why basic material stocks and economically-sensitive cyclical stocks have been so strong.

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HOW TO PARTICIPATE IN RISING COMMODITIES... Last Friday, I published another bullish analysis on commodity markets. For the first time in twenty years, commodities as an asset class are outperforming both bonds and stocks. I believe this is a trend that will continue for sometime. Fortunately, there are now some mutual funds that enable investors to participate in a bull market in commodities without actually having to buy the individual commodities themselves. An article in BARRONs last week entitled "The Right Stuff" talked about how pension funds were finally discovering the profit potential in commodities. The article listed three mutual funds that take advantage of commodity trends. The three are the Oppenheimer Real Asset Fund, the Pimco Commodity Real Return Fund, and the Van Eck Global Hard Assets Fund. All three can be charted from the Stockcharts.com website. Chart 3 shows the Pimco Commodity fund recently hitting a new high. All three mutual funds are relatively new and don't have a lot of price history. Given the new popularity of commodities, however, they may be worth taking a look at.

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