Bond Market – Annual Review

CANDLES & TA:

Let us begin with the annual curve closure. The widely anticipated 8/20 EMA bullish cross on the U.S. 10-year yield did not materialize, with the two averages finishing just 0.003% apart. Viewed in isolation, this may appear disappointing. However, when placed in the broader curve context, the progression remains orderly and intact: the 2-year yield completed this cross in 2024, the 5-year followed in 2025, and the 10-year now appears positioned to do so in 2026. Under this sequence, the 20-year and 30-year segments would be expected to follow.

While sufficiently long historical data for the 20-year yield are not available to track this event reliably, the signal from the 30-year yield is unambiguous. The presence of five consecutive green annual candles for the yield underscores persistent upward pressure and a clear long-term intent along the back end of the curve.

On shorter horizons, the picture is also constructive. All curve components closed December with bullish monthly candles, with strength increasing progressively from the 2-year to the 30-year. This configuration suggests that January is likely to start on a bullish footing. Should momentum persist, the upcoming policy decisions by the Federal Reserve and the Bank of Canada on January 28 will be especially important to monitor, as they may provide the next inflection point for the curve’s evolution.

The U.S. 10-year yield closed December with a mixed technical profile. On the annual frame, a Dark Cloud Cover was recorded, while the short-, mid-, and longer-term horizons up to the 3-month frame remain either bullish or leaning bullish. The 6-month frame is neutral, with a slight bearish bias.

Taken together, this configuration suggests that yields are likely to continue pushing higher during the first one to two quarters of the year. In the second half, a retracement becomes more probable, although the pullback is not expected to be deep. Overall, the most likely path appears to be a predominantly sideways movement, characterized by fluctuations both higher and lower rather than a sustained directional trend.

The following key paragraphs are from the previous 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 and 100 YMA

The annual 8- and 20-EMA lines finished December 31 separated by only 0.003%. The slope and relative positioning of these moving averages suggest that a bullish cross is effectively inevitable over the next few years, with 2026 the most likely timing. A confirmed cross would mark the beginning of a long-duration bull market in rates, potentially analogous to the cycle observed between 1950 and 1980.

Looking further ahead, the next critical milestone would be the successful reclaim of the 100-year moving-average support. The U.S. 10-year yield has already tested this level three times. A fourth attempt could prove constructive and would materially strengthen the case for very long-term bullish odds in rates.

Long Term

With both scenarios still on the table, I would like to introduce a third one in black, which tracks a potential triangle for wave y of (2). This formation would imply a largely horizontal move with limited fluctuations lasting one to two years. Such behavior would align well with the signals coming from the longer-term candles. A move below the red horizontal line would invalidate both the red and black counts and shift primacy to the blue scenario.

Spread 10Y-2Y

The 10Y–2Y spread ended the year with exceptionally strong bullish signals across all time frames, from the daily through the annual. It remains firmly in a long-term uptrend, reinforcing the view of a broadly healthy economic backdrop. The yield curve continues to display positive dynamics, with longer-dated yields showing stronger bullish behavior than shorter maturities. As a result, the probability of further widening in the spread remains elevated.

SUMMARY

The bond market ended the year with an important but balanced message. Yields across the curve remain structurally firm, with longer maturities behaving more bullishly than shorter ones. While the U.S. 10-year narrowly missed confirming an annual bullish EMA cross, the broader progression along the curve remains intact, pointing to higher-rate pressure that is building rather than peaking. Shorter- and mid-term signals suggest some upside in yields early in the year, while longer-term frames argue against a sharp or sustained breakout.

The most likely path for rates is a mostly sideways regime with fluctuations higher and lower. Yields may push higher in the first part of the year and then retrace modestly later on, without a deep pullback. This fits well with long-term candle structures and supports the idea that rates are transitioning into a prolonged consolidation phase rather than a reversal.

The 10Y–2Y spread strengthens this view. Its strong bullish signals across all frames point to continued curve steepening, with long-term yields leading. This setup is generally consistent with a healthier economic backdrop but also suggests ongoing pressure on rate-sensitive assets. Overall, the bond market is signaling a transition phase, with clearer long-term direction likely to emerge as 2026 progresses.

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!