Bond Market – Weekly Analysis

CANDLES & TA:

After printing a weekly Bullish Engulfing at the beginning of March, the US10Y is now surging on both the daily and weekly frames, leaving the 50, 100, and 200 DMA, as well as the 50 and 100 WMA, well behind. The odds are strongly bullish, with rates tracking toward solid bullish closures on both the monthly and quarterly frames.

Rates remain bullish until signaled otherwise. It may feel like panic, but the setup was well telegraphed—technicals allowed us to prepare for this scenario.

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, potentially signaling proximity to a bottom.

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

Some technicals are beginning to support the view that the current move higher is wave 3 of a larger degree. If this interpretation is correct, the next most probable target for the 10Y yield would be around 6%—a truly explosive move. As of now, it stands at 4.4%.

Spread 10Y-2Y – Risk of Recession?

In the March 6 analysis, I noted that “the 10Y–2Y spread closed February with a bearish candle, potentially marking the top of wave 3.” The situation is now deteriorating faster than initially anticipated. The spread is currently tracking toward a confirmed top on the monthly frame (the 10Y–2Y spread needs to close below 0.532%), with potential reinforcement from a Bearish Engulfing on the quarterly frame. This would significantly escalate the bearish outlook.

Such a shift could mark the beginning of a much deeper retracement, potentially driving the spread back into negative territory and invalidating the long-term impulsive structure. These signals may serve as early harbingers of a broader and more prolonged reversal, potentially pointing toward a lengthy recessionary phase.

Canadian CA05Y

The Canadian 5-year yield continues to track toward a strong bullish monthly close. The Bank of Canada left rates unchanged on March 18, which could prove to be a major miscalculation.

SUMMARY

The bond market is sending increasingly urgent signals. U.S. 10Y yields are accelerating higher after a powerful bullish reversal, breaking above key moving averages and tracking toward strong monthly and quarterly closes. The technical structure is now beginning to resemble a potential wave 3 extension, which, if confirmed, opens the door to a much more aggressive move in rates. What currently feels like panic is, in reality, a scenario that was clearly outlined by the technicals weeks ago.

At the same time, the 10Y–2Y spread is deteriorating faster than expected and is now approaching a critical threshold for confirming a top on the monthly frame. A failure here, reinforced by a bearish quarterly structure, could trigger a deeper retracement, potentially pushing the spread back into inversion and signaling the early stages of a broader economic slowdown.

In both the U.S. and Canada, policymakers may already be behind the curve. The Fed and the Bank of Canada held rates unchanged on March 18—a move that may prove far too passive at a time when decisive action was required. Meanwhile, the Canadian 5-year yield continues to build toward a strong bullish monthly close. Across the board, rates remain firmly bullish, and the current trajectory suggests mounting pressure on both markets and policymakers.

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.