Bond Market – Monthly Analysis

CANDLES & TA:

The last week of March was highly eventful. Looking across the entire curve, all monthly candles—from the 02Y to the 30Y—formed Bullish Engulfing patterns, signaling a continued long-term increase in yields. At the same time, the bullish momentum becomes progressively stronger toward the shorter maturities, outlining a potential spread inversion.

On the US10Y charts, a freshly recorded 50/200 DMA bullish cross is now in place, along with an 8/20 EMA bullish flip on the monthly frame and a bullish continuation signal on the quarterly. Despite a red weekly candle, the structure remains technically sound, with higher odds favoring further upside in yields.

Rates remain bullish across the majority of timeframes. Most importantly, the solid bullish closures on both the monthly and quarterly frames point to the potential development of a prolonged bull market in rates.

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
(as 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 4.3%.

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 confirmed a top on the monthly frame by closing below 0.532%, as discussed in previous updates. This significantly escalates the bearish outlook.

This move could mark the beginning of a much deeper retracement, potentially driving the spread back into negative territory and invalidating the long-term impulsive structure. The signal may serve as an early harbinger of a broader and more prolonged reversal, potentially pointing toward a lengthy recessionary phase.

Canadian CA05Y

The Canadian 5-year yield formed a strong bullish reversal signal, with high odds for a continued increase in April. The Bank of Canada and Federal Reserve are scheduled to announce their next rate decisions on April 29.

SUMMARY

The bond market closed March and Q1 with exceptionally strong bullish signals, pointing to a high probability of further rate increases in April. At the same time, shorter-term frames suggest a likely pullback or consolidation in the early part of the month. The more meaningful bullish activity may re-emerge closer to the end of April, aligning with the upcoming rate decisions from the Federal Reserve and the Bank of Canada.

Meanwhile, the 10Y–2Y spread has recorded a critical monthly confirmation of a top, reinforced by divergence across the curve, with stronger bullish pressure toward the shorter maturities. This failure at current levels, combined with a Bearish Engulfing on the quarterly frame—an extremely rare signal—outlines a clear path for the spread to move back into inversion, signaling the early stages of a broader economic slowdown.

The macro backdrop increasingly supports this view. Sticky inflation, amplified by rising energy costs and supply-side disruptions, is reducing the flexibility of central banks. Instead of easing into a slowdown, policymakers may be forced to maintain restrictive conditions—or even tighten further—into weakening economic activity. This creates a feedback loop: higher yields increase borrowing costs, suppress demand, and pressure asset valuations, while persistent inflation limits the ability to respond.

In such an environment, the risk is not just a slowdown, but a more prolonged and self-reinforcing cycle where elevated rates and weakening growth feed into each other, accelerating the transition toward a broader downturn.

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.