Bond Market – Weekly Analysis

CANDLES & TA:

There is a high probability that the early April weakness is over, with yields likely to resume their upward move. The daily has formed a bottom, while the weekly failed to establish a top. Combined with bullish technical support, these signals suggest that rates have a better chance of moving higher in April.

More importantly, strong 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?

After closing Q1 with a strong Bearish Engulfing, the probability of the 10Y–2Y spread continuing to compress toward zero has increased significantly.

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

Canadian CA05Y

The Canadian 5-year yield formed a strong bullish reversal in March, with high odds for continued upside in April. If no meaningful reversal occurs this month, CA05Y is likely to record a bullish 8/20-month EMA cross in April or May, signaling a prolonged period of rising rates.

The Bank of Canada and the Federal Reserve are scheduled to announce their next rate decisions on April 29.

SUMMARY

Yields are showing strong signs of resuming their upward trend after a brief early-April pause. Daily and weekly structures point to a completed pullback, while bullish momentum on higher timeframes suggests that rates are likely to continue rising. The broader backdrop, including solid monthly and quarterly closures, supports the development of a more prolonged upcycle in yields.

At the same time, the 10Y–2Y spread is compressing, increasing the risk of a move back into inversion—often a harbinger of economic slowdown. In Canada, the 5-year yield is also aligning with this trend, with a potential bullish EMA cross signaling sustained upward pressure on rates. Upcoming central bank decisions at the end of April will be a key catalyst for confirming the next phase.

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.