Bond Market – Monthly Analysis
The bond market is no longer whispering. It is sending two very different messages on opposite sides of the border.
In the U.S., yields remain structurally firm, with the curve still pointing toward higher-rate pressure and the possibility of another policy shock. In Canada, the message is turning in the opposite direction, as recessionary pressure and bearish yield signals raise the odds of rate cuts.
In this report, we examine the latest technical signals across the U.S. and Canadian bond markets, assess the widening policy divergence, and outline why the next moves in yields may become one of the most important macro signals for currencies, equities, and the broader economy.
CANDLES & TA:
On Friday, the daily US10Y failed to close below the previous day’s low by just 0.002%. While that does not make the close automatically bullish, it does raise the bullish odds.
At the same time, the monthly candle closed just 0.001% above April’s high, turning the frame into a solid bullish continuation signal. The weekly close also failed to confirm a top; most likely, it represented consolidation rather than reversal.
Overall, the short-term odds are neutral, while the mid- and long-term outlooks remain bullish. Looking across the entire yield curve, the May close was broadly bullish, signaling much stronger odds for a possible rate hike in June.
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!
In April, the 10Y–2Y spread technically escalated the bearish odds up to the 4M frame. Since then, it has continued moving toward the 0% level.
This week, the spread touched the +0.30% area, suggesting that, based on historical behavior, we could be only a few months away from another inversion.
Please refer to the April Monthly report for more details. All prior assessments remain intact.
Canadian CA05Y
Canadian rates are now at a crossroads. Canada has reported a second consecutive quarter of shrinking GDP and may now be technically in recession. The bond market reacted immediately, with monthly Bearish Engulfing signals forming across the entire Canadian curve.
My read is that the probability of declining rates has increased materially, and the chances of a rate cut at the next BoC meeting are now very high. If that happens while the U.S. is moving in the opposite direction, or even preparing for higher rates, the Canadian dollar could come under serious pressure. There are already severe technical signals developing in USD/CAD, and I will likely prepare a separate update on that pair.
Speaking specifically about CA05Y, there is a slightly better chance that the current structure develops as an extended corrective move, potentially a bearish flag in green, as shown on the chart above.
Needless to say, the BoC meeting on June 10 will be of utter importance. Interestingly, for some time, BoC and Fed announcements were landing on the same day, and the market moves appeared somewhat synchronized. Now the BoC decision comes one week ahead. I wonder why.
SUMMARY
The U.S. and Canadian bond markets are now sending opposite policy messages.
In the U.S., the May close was broadly bullish across the yield curve. US10Y avoided a bearish daily/weekly confirmation and closed the month with a bullish continuation signal, keeping the mid- and long-term yield outlook bullish. The 10Y–2Y spread also continues to move toward the 0% level, raising the risk that recessionary pressure could reappear through another inversion later this year. Overall, the U.S. curve is still pointing toward higher-rate pressure and even a possible Fed hike.
Canada is moving in the other direction. With a second consecutive quarter of shrinking GDP and monthly Bearish Engulfing signals across the Canadian curve, the bond market is increasingly signaling declining rates and a high probability of a BoC cut at the June 10 meeting. CA05Y still allows for some corrective extension, but the broader message is softening yields.
The key macro risk is divergence. If Canada cuts while the U.S. remains restrictive or moves toward a hike, the rate differential could put serious pressure on the Canadian dollar. USD/CAD already appears to be developing strong bullish technical signals, making the pair worth a separate review.
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.
