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Move into bonds for Q4: Larry McDonald

Treasuries could help protect stock gains heading into the end of the year, especially with the likelihood of continued quantitative easing, Newedge Senior Director Larry McDonald said Wednesday.

"If you look at the bond funds, like the TLT and the BLV, those are 15 percent below their May highs," he said. "In other words, if we are truly back to QE-infinity, which many people are talking now, I'm hearing May. I'm hearing July. I'm hearing late next year for QE—that means the bonds, the long end of the bond curve is very, very cheap.

"You could have them retrace 50 percent back to the old highs, which would be a 6 to 7 percent return."

(Read more: Tesla's stock valuation a speed bump: Analyst)

On CNBC's "Fast Money," McDonald said that the case for the Federal Reserve to keep its easy-money policy rested on the damage that's been done to the economy, lower consumer confidence, weak expected corporate earnings and the likelihood that Vice Chair Janet Yellen would succeed Chairman Ben Bernanke.

McDonald suggested moving gains from the stock market into Treasury bonds.

(Read more: 'There is not any fear now' in the market: Jon Najarian)

"I think if you're up 20 percent on your equities going into the fourth quarter, I think it makes sense for the rest of the year—move some of your asset allocations into bonds," he said. "And I think you have decent risk/reward because bonds have a good chance at 5 to 7 percent in the fourth quarter."

By CNBC's Bruno J. Navarro. Follow him on Twitter @Bruno_J_Navarro.

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