Bond Market – Weekly Analysis
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 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:
Multiple bearish failures we pointed out in the monthly report have now materialized in a bullish reaction. The short- and mid-term frames have turned bullish, signaling a continued move higher, just 10 days before the Fed’s rate-setting meeting.
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%.
100-year Moving Average
As you can see on this annual chart, the 10-year rate is approaching the 100-year MA for the fourth time, with just 0.20% to go. Will it break above it this year? The long-term odds are definitely bullish.
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 the largest timeframes, the U.S. 10-year yield (US10Y) appears to have completed waves i and ii off the 2020 lows and may have already started wave iii.
Notably, this long-term chart has remained unchanged since December 2022, for more than three years, underscoring the stability of the broader structure and reinforcing the long-term bullish 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 bearish odds up to the 4M frame. Since then, it has continued moving toward the 0% level. The spread has strong odds of losing the 100 WMA next week.
Please refer to the April Monthly report for more details. All prior assessments remain intact.
Canadian CA05Y
A very interesting development is emerging on the monthly chart. The Canadian 5-year rate’s monthly candle shows constructive dynamics, expanded by the recently formed 8/20 EMA bullish cross. Is the bullish pressure strong enough to negate May’s Bearish Engulfing?
Needless to say, the BoC meeting on June 10 will be of critical importance, one week before the Fed’s showtime.
SUMMARY
The bond market is showing a meaningful shift toward renewed bullish pressure in yields. In the U.S., multiple bearish failures highlighted in the monthly report have now materialized into a bullish reaction, with the short- and mid-term frames turning bullish just ahead of the Fed meeting. On the largest scale, US10Y remains structurally bullish, may have already started wave iii off the 2020 lows, and is approaching the 100-year MA again, a major long-term test that could define the next phase of the rate cycle.
The curve is also sending an important warning. The 10Y–2Y spread escalated bearish odds up to the 4M frame in April and has continued moving toward the 0% level. With solid odds of losing the 100 WMA next week, the spread remains one of the key macro signals to watch, especially as higher-rate pressure could become increasingly important for currencies, equities, and broader risk assets.
In Canada, the 5-year rate is also showing constructive monthly dynamics, supported by the recent 8/20 EMA bullish cross. The key question is whether this bullish pressure is strong enough to negate May’s Bearish Engulfing. That makes the June 10 BoC meeting especially important, as it comes one week before the Fed and could sharpen the policy divergence between Canada and the U.S.
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.
