Canadian Bond Market – Annual Review
The Canadian bond market closed 2025 with a rare and highly unusual cluster of signals—enough to warrant a dedicated review. In this update, we break down the key candlestick formations and technical developments, examine the Elliott Wave structures, and assess momentum across multiple time frames to understand what this setup may be preparing for next.
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CANDLES & TA:
My growing concerns about a bullish turn in Canada’s key benchmark yield—CA05Y, which underpins the majority of Canadian mortgages—materialized decisively at the annual close on December 31. The yield finished the year with a rare and forceful alignment of bullish reversal signals across every time frame, from the daily through the annual. Most notably, the monthly printed a Tower Bottom, while the quarterly and 9-month frames confirmed strong Bullish Engulfing formations. Collectively, the candlestick message is unambiguous: Canadian 5-year yields are being pushed higher.
Looking beyond the single maturity, the broader Canadian curve—from 2-year through 30-year yields—has also formed powerful reversal combinations on multiple super-large frames. Momentum across the curve is notably stronger than in the U.S. counterpart, indicating that Canada is positioned to lead rather than follow in the next phase of rate dynamics.
At this stage, the implication is clear. Canada appears poised to be among the first developed markets to experience a renewed and potentially more aggressive rise in rates. If this structure holds, the long-term rally that began in 2020 has a credible path to resume in 2026, with meaningful consequences for borrowing costs, housing, and broader financial conditions.
ELLIOTT WAVES
Long Term
On a very large scale, the Canadian 5-year yield may have completed either wave 2 in blue or wave B in red and is now setting up for a prolonged advance toward the targets discussed roughly 1.5 years ago. An alternative scenario—an extended correction for wave B in light red—remains possible. However, given the strength and alignment of the very long-term candlestick signals, this alternative currently carries a lower probability.
Flag
Unless the geometry is flawed, this long-term bullish flag appears to be complete. Both the candlestick structure and the supporting technicals are consistent with this hypothesis and favor the projected rally.
SUMMARY
The Canadian bond market closed 2025 with an unusually strong and coherent bullish signal set, led by the 5-year yield (CA05Y). Key reversal formations across multiple large frames—including monthly, quarterly, and 9-month—suggest that yields have completed a major corrective phase and are now positioned for a renewed advance. Momentum across the Canadian curve, from the 2-year to the 30-year, is notably stronger than in the U.S., indicating that Canada may lead the next leg higher in global rates rather than follow it. From a structural perspective, the evidence favors the view that a long-term bullish phase in yields is resuming.
Against this backdrop, the most recent pause by the Bank of Canada appears more transitional than decisive. With yields pressing higher and long-term technicals firmly aligned, the risk is skewed toward a policy response rather than prolonged accommodation. The January 28 policy meeting—coinciding with the Federal Reserve decision—stands out as a potential inflection point. While a hold remains possible, the bond market is increasingly pricing the risk that the next meaningful move by the BoC could be a hike rather than a cut.
If confirmed, such a shift would reinforce the broader thesis that Canada may be the first to re-enter a more aggressive rate environment, with direct implications for mortgages, housing sensitivity, and financial conditions. Even in the absence of an immediate hike, the current market structure suggests that higher yields are likely to persist, keeping upward pressure intact well into 2026 unless invalidated by future signals.
Happy Trading!
