Bond Market – Weekly Analysis

CANDLES & TA:

US10Y pulled back into the end of the week, but the move failed to produce a bearish signal on both the daily and weekly frames. As a result, the odds remain neutral, leaning bullish. The monthly is still tracking toward a bullish reversal. Larger frames continue to lean bullish overall, though several are approaching key watershed levels. The annual close will be pivotal.

The following key paragraphs are from the previous monthly analyses, and I keep them for a long-term reference:

From the April 2024 monthly: “The yield ended in April with strong bullish candles across multiple frames and long and very long term odds remain bullish. The monthly frame recorded a 50/200 MMA “golden” cross at the beginning of May. It did not happen for 72 years. After it was recorded last time in 1952, the rates rallied for 30 years and reached 15.82% in 1981.” The cross expanded wider in May and we have no reasons for considering a reversal in this department.

I’d like to remind that in 2023, US10Y recorded several very long term signals, such as 8/20 EMA crosses on the quarterly and semiannual frames, which are extremely rare. For example, the quarterly 8/20 EMA cross last time happened in 1955. Following the cross, there were 26 years of rate increases from 2.7% to 15.8%.

RATE of GROWTH
(initially discussed on February 9, 2023)

In 2023, I discussed certain events and compared them to similar occurrences in the 1950s, noting that everything seems to be happening faster in the bond market this time around. The pace is markedly different, and I continue to maintain this hypothesis.

Looking at the annual candles, it’s evident that the current sets and the rate of growth are far more agile compared to the mid-20th century.

From 1940 to 1950, it took 18 years for the 10-year yield to climb from the bottom to 4.5%. This time, that same rate was achieved in just 4 years—a pace 4.5 times faster. If this trajectory continues, we could witness a strong acceleration in the coming years, potentially completing the current cycle by 2029-2030. It’s certainly something to keep in mind.

ELLIOTT WAVES

Very Long Term
No change, refreshed the chart.

On a very large scale, the US 10-year yield (US10Y) completed its first impulse wave from the 2020 lows. Wave ii may get extended for a few quarters or even years, horizontally or slightly downward.

Notably, this chart has remained unchanged since December 2022 (for three years!), reinforcing the long-term outlook.

Annual 8-20 EMA Bullish Cross

At the beginning of 2025, the US10Y approached an 8/20 EMA cross on the annual frame, but the move was reversed as the year progressed. Even if the cross does not complete this year, the slopes of the moving averages suggest that it is effectively inevitable within the next few years. A confirmed cross—whether this year or next—would signal the start of a long bull market in rates, potentially resembling the cycle observed from 1950 to 1980.

The annual 8- and 20-EMA lines remain only 0.007% apart. A modest push higher would produce an event not seen in roughly 70 years. And it feels that the decision will be made on the last trading day of the year.

Long Term

With both scenarios on the table, the very long term outlook remains strongly bullish. A move below the red horizontal line will invalidate the red count and make the blue primary.

Spread 10Y-2Y
(no change, refreshed chart)

The 10Y–2Y spread remains in a long-term bullish trend, supporting a broadly healthy economic backdrop. The curve continues to exhibit positive dynamics, with longer-dated yields behaving more bullishly than shorter maturities. As a result, the probability of further widening in the spread remains elevated.

Canadian 5-year Yield
(no change, an updated chart)

I am increasingly concerned about the sharp uptick in the Canadian 5-year yield. If the monthly candle closes in its current form, it would mark a bullish bottom via a Harami and complete a long-term bullish flag. Will the next move by the BoC be a hike?

SUMMARY

The 10Y entered December with notable strength and continues to track toward a bullish close for the month and several larger frames. This persistence is increasingly concerning, as the advance is unfolding despite a rate cut and the Fed’s discussion of further easing. A bearish failure on Friday on both the daily and weekly frames effectively shifted control back to the bulls. Unless momentum reverses sharply in the final days of the year, yields are on track to close with some of the most bullish candles and signals on record.

The 10Y–2Y spread also remains healthy, with bullish pressure distributed positively along the curve. Both candlestick structure and technical readings point to elevated odds of further widening, a pattern typically associated with ongoing economic activity.

Taken together, the very long-term outlook remains bullish. Monthly and higher-timeframe trends continue to support this view, and absent a meaningful retreat before year-end, the larger closures are likely to finish decisively bullish.

From the previous analyses:

In 2024 and 2023, US10Y recorded several strong technical events that hadn’t occurred for decades, making it very difficult to reverse these trends. This suggests that higher rates are almost guaranteed in the coming years.

US10Y is also close to recording another significant event—a cross above the 100 annual moving average (MA) resistance line. This has not yet happened, and we are closely monitoring it, though it will require a lot of patience.

I would like to reiterate (as discussed earlier) that a prolonged period of higher rates is not necessarily damaging for markets. If we look at the period from the 1950s to the 1980s, a time of increasing rates, the markets grew on average 6-7% per year. We might see a similar trend in the coming years.

Happy Trading!