NEW YORK ( The Fred Report ) -- Here at the FRED Report ( www.theFREDreport.com), we wish all TheStreet readers a very happy and prosperous new year. As we move into 2011, there are some parts of market activity that are of interest to us, and these are the subject of today's article.

Bonds are interesting here -- we have had a lot of questions about the bond market as rates have risen sharply since November. While, as we have discussed in previous columns, we are long-term bond bears but we believe that rates may have risen too far, too fast. We note that the TLT (Barclays 20 Year Treasury Bond iShare) has moved down into long-term support, as has the LQD (Investment Grade Corporate Bond iShare) -- our favorite area for bond buyers in 2011. Bond bears are out in force and we think that we could see a one to three-month rally in bonds. We show weekly charts of the TLT and LQD below, so readers can see this support.

We have some additional ideas in Fixed Income for readers who may want to take a bit more risk. First, California Municipals have dropped dramatically since last November and could be setting up for a rally. The ETF we would consider for this is CMF (iShares California Muni Bond ETF).  Part of the reason for this rally is that the state has a new governor -- Jerry "Moonbeam" Brown. He has promised some new budget ideas and this could help CMF. The long-term chart on CMF is a bit erratic, but the short-term chart shows bottoming signs.

Another area of interest is Emerging Markets' debt. An ETF for this is EMB (iShares JP Morgan USD Emerging Markets bond ETF). Emerging markets have been hot over the last few years, and while foreign bonds seem riskier than their U.S. counterparts, this ETF could provide some diversification for a small portion of a portfolio allocation to fixed income. We show a daily chart below as this is also a shorter-term idea.

One other speculative area of the interest rate markets that may rally in the first part of 2011 is the HYG (High Yield Corporate Bond iShare). In The FRED Report, we have mentioned that high yield bonds often trade as a proxy for risk. We show a weekly chart as this seems to us to be less speculative than CMF and EMB.

In our "year ahead" piece (watch Fred's Fab Four here on TheStreet) we posit that interest rate markets will be less volatile than in 2009 and 2010. Right now, this means that bonds rally for a bit (and rates decline), and then stabilize as the economy continue to improve. One caveat is that by "stabilize," we mean rates trend SLOWLY up -- which means that bonds will likely not be one of the top performing asset classes of 2011. Still, for readers who are looking for income, this appears to be a good opportunity to move back into the bond market.
Fred Meissner is founder and publisher of The Fred Report. Fred is a CMT and past President of the Market Technicians Association (MTA). He recently left Merrill Lynch's Market Analysis Department and Sector Strategy Department to form The Fred Report. A detailed bio is here:Fred Meissner.

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