Bond Market – Monthly Analysis
This Bond Market Analysis examines key developments in the U.S. 10-year yield and the Canadian 5-year yield, alongside the evolving 10Y–2Y spread. The focus is on how recent technical signals, longer-term structures, and annual curve behavior are aligning, and what these combined factors may imply for the broader fixed-income landscape.
CANDLES & TA:
A 180-degree reversal unfolded in the bond market in February. Against the odds, and after confirming a bottom, yields printed strong bearish reversal and continuation candles on both the monthly and 2M frames. The final week of February closed with a bearish candle, breaking below the 200 WMA support. Yields are now approaching a potential breakdown from a very long-term channel on the weekly chart.
The daily also closed bearish. However, it is nearing oversold territory, and several hourly time frames are already showing bullish divergence across multiple indicators. While more lower lows remain possible, yields appear to be in close proximity to a significant bottom. The overall bias is bearish, but the risk of a reversal is elevated.
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
On a very large scale, the U.S. 10-year yield (US10Y) appears to have completed its first impulsive wave off the 2020 lows and is now developing wave ii.
Notably, this long-term chart has remained unchanged since December 2022—over three years—underscoring the stability of the broader structure and reinforcing the long-term outlook.
Long Term
No changes to the outlook for wave (2). The downward move could still evolve into a prolonged ending diagonal for wave c of (2), shown in blue.
Spread 10Y-2Y
The 10Y–2Y spread closed February with a bearish candle, potentially marking the top of wave 3. The yield curve pulled back, signaling relatively stronger demand for shorter-dated yields. The bond market may be entering a period of uncertainty, which could correlate with elevated volatility in the equity market.
Canadian CA05Y
The Canadian 5-year yield is aligned with the US 10Y, closing February with strong bearish signals. Momentum has shifted, increasing the odds of a continued corrective move lower and potentially extending the bearish flag with at least one more lower low.
SUMMARY
Bonds and yields experienced a sharp shift in February, reversing prior constructive signals and printing strong bearish candles on the monthly and 2M frames. Key supports were broken, momentum turned negative, and both U.S. and Canadian yields now lean toward a continued corrective move lower, with at least one more marginal low possible.
At the same time, shorter-term charts are nearing oversold conditions, and bullish divergences are beginning to appear. While the overall bias remains bearish, the risk of a meaningful bottom forming in the near term is elevated, especially as uncertainty in the bond market aligns with rising volatility in equities.
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!
