Bond Market – Weekly Analysis

CANDLES & TA:

Most likely, the US10Y is positioning for a serious bullish rally. Unless yields retrace significantly in the final days of April, the 2M frame will form an epic Bullish Engulfing combo, strongly elevating the monthly bullish momentum established in March.

The daily frame recorded a 100/200 DMA golden cross earlier this week, and this event strongly supports the prospective 2M closure. The entire yield curve is approaching the end of April with similar signals, with the shortest maturities looking the most bullish.

After strong bullish closures on the monthly and quarterly frames in March, the bond market is signaling 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 may have already completed wave ii, with early signs that wave iii is now in progress.

Notably, this long-term chart has remained unchanged since December 2022, for 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 10Y–2Y spread has significantly increased the probability of continued compression toward zero. The momentum is also escalating, with the 4-month frame currently on track to form another Bearish Engulfing. This indicates a continued demand shift toward shorter maturities, a strong harbinger of economic headwinds.

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 also serve as an early warning 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

US10Y is most likely positioning for a serious bullish rally in yields. Unless rates retrace significantly in the final days of April, the 2M frame will form a powerful Bullish Engulfing combo, strongly elevating the bullish monthly momentum established in March. This setup is supported by the daily 100/200 DMA golden cross recorded earlier this week, while the entire yield curve is approaching the end of April with similar signals, with the shortest maturities looking the most bullish.

At the same time, the 10Y–2Y spread continues to compress after closing Q1 with a strong Bearish Engulfing, and the 4-month frame is also on track for a bearish formation. This points to a continued demand shift toward shorter maturities and acts as a strong harbinger of broader economic headwinds. The Canadian 5-year yield is sending a similar warning, with CA05Y likely to record a bullish 8/20-month EMA cross in April or May unless a meaningful reversal occurs before month-end.

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.