Bond Market – Weekly Analysis
The bond market continues to move through an important technical phase, with yields, duration instruments, and key spreads sending a mixed but increasingly meaningful set of signals.
In this weekly report, we review the latest candle and momentum developments across the major Treasury frames, assess the broader structure for yields and bonds, and outline the key scenarios that could shape the next directional move.
CANDLES & TA:
This week, the US10Y consolidated and formed a neutral-bullish candle on the weekly.
Overall, the rate market is bullish on practically all frames, supported by technically strong long- and very-long-term signals.
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.
Spread 10Y-2Y – Risk of Recession!
The 10Y–2Y spread escalated the bearish odds up to the 4M frame in April. There is now a very high risk that the spread could turn negative again within the next 1–2 years. Please refer to the April Monthly report for more details. All prior assessments remain intact.
Canadian CA05Y
The Canadian 5-year yield technically confirmed a long-term bullish reversal in April and recorded a bullish 8/20-month EMA cross by a mere 0.003%. The cross has expanded in May.
SUMMARY
Yields remain in an important long-term transition zone. The 10Y–2Y spread increased bearish odds up to the 4M frame in April, keeping the risk of a renewed inversion elevated over the next 1–2 years.
At the same time, the Canadian 5-year yield has technically confirmed a long-term bullish reversal, with the bullish 8/20-month EMA cross recorded in April and expanded in May. Overall, the bond market continues to show signals consistent with higher yield pressure and rising longer-term recession-risk implications.
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.
