Bond Market – Monthly Analysis

Almost all sections of this report have been updated with crucial information.

CANDLES & TA:

The big concern has materialized. The entire curve closed April with overwhelmingly bullish odds. The 2M and 4M frames formed strong bullish reversal and continuation candles, signaling a prolonged bull market in rates.

But this is not everything. The most concerning part is that the shorter-maturity end of the curve is more bullish than the longer end, and we discuss the spread implications later in this study.

Overall, the rate market is bullish on practically all frames, supported by technically strong long- and very-long-term signals. The question now is what the Fed is going to do about it.

8-20 EMA Annual Cross

We discussed the 8/20-year EMA bullish cross that occurred in January 2026. While there are still eight months before it is officially recorded, the recent uptick is worth noting. It could help US10Y reclaim the 100-year MA and further reinforce the very long-term bullish odds.

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 4.374%.

Spread 10Y-2Y – Risk of Recession!

We have been discussing the 10Y–2Y spread for several months, and today the 4-month frame formed a Bearish Engulfing. This is only the third such event since 1988, with no data available for prior cycles. The previous two events, double-circled on the chart, eventually led to negative spreads and recessions.

Today, on April 30, we witnessed the first strong technical signal of a potential upcoming recession. There are still unknowns around timing and depth, but the odds are now elevated, especially because the current base is the lowest among the previous events.

It is important to remember that each candle represents four months, so this process could take a few years to fully develop. In parallel, while the bond market begins to shift, the stock market may continue to advance for some time, similar to the 1998–1999 and 2016–2018 periods.

While it is still a bit early, we may start treating this spread formation as a possible bearish flag. The structure may take a few more months, or even quarters, to fully complete.

Canadian CA05Y

The Canadian 5-year yield technically confirmed a long-term bullish reversal and recorded a bullish 8/20-month EMA cross in April by a mere 0.003%.

While the Bank of Canada did not move this month, it may have a few reasons to do so in June, and it likely will not be a cut.

SUMMARY

The bond market closed April with a major technical message. The entire U.S. yield curve finished the month with overwhelmingly bullish odds, with the 2M and 4M frames forming strong bullish reversal and continuation candles. This signals a likely prolonged bull market in rates, supported by strong long- and very-long-term technical signals.

The most concerning part is the curve structure. The short end is more bullish than the long end, and the 10Y–2Y spread has now delivered one of the strongest warnings in decades. The 4-month frame formed a Bearish Engulfing, only the third such event since 1988. The previous two eventually led to negative spreads and recessions. While timing and depth remain open questions, the recession countdown tracker is now officially on.

The spread formation may also be developing into a bearish flag, although it could take several more months, or even quarters, to fully complete. Importantly, this does not mean equities must reverse immediately. In prior cycles, the stock market continued to advance for some time while the bond market was already shifting underneath the surface.

Canada is sending a similar message. The Canadian 5-year yield technically confirmed a long-term bullish reversal and recorded a bullish 8/20-month EMA cross in April by a mere 0.003%. The Bank of Canada did not move this month, but if these signals continue into June, the next policy pressure may not point toward a cut. The Fed appears to be in the same position: with rates technically pushing higher across the curve, the bond market is leaving little room for a clean easing narrative.

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.