Bond Market – Weekly Analysis
In this report, we examine the latest technical signals across the U.S. and Canadian bond markets, 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:
While the mid- and long-term trends and signals remain primarily bullish, the short-term structure has been correcting without breaking major support. However, the risk of a potential mid-term corrective move remains on the table.
Next week’s Fed meeting, under a new chair, will likely provide more clarity on the short- and mid-term direction for the 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 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 been battling around the 100 WMA, with a good chance of continuing lower.
Please refer to the April Monthly report for more details. All prior assessments remain intact.
Canadian CA05Y
The BoC left Canadian rates unchanged. The rate reacted by moving slightly lower on the chart. There are still a few options on the table, so we will wait for the monthly candle to show its true colors and then evaluate whether all previous estimates remain intact.
SUMMARY
The bond market remains broadly constructive for yields on the mid- and long-term frames, while the short-term structure continues to correct without breaking major support. The risk of a deeper mid-term corrective move remains on the table, and next week’s Fed meeting should provide more clarity on the short- and mid-term direction.
The 10Y–2Y spread remains an important warning signal. After bearish odds escalated to the 4M frame in April, the spread continued moving toward the 0% level and is still battling around the 100 WMA, with a good chance of moving lower.
In Canada, the BoC left rates unchanged, and the rate reacted by moving slightly lower on the chart. Several paths remain possible, so the monthly candle will be important for confirming whether the previous estimates remain intact.
Overall, the bond-market picture remains mixed short-term, but the larger trend in yields is still primarily bullish until reversed.
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.
