Bond Market – Monthly Analysis

CANDLES & TA:

The bond market was showing a potentially strong bearish close just a few days before the end of June. However, a late rally mitigated the monthly bearish odds, and US10Y closed with a rather indecisive doji.

At the same time, the quarterly and semiannual frames closed with moderately bullish signals, suggesting better odds for a continued advance.

After the June close, all frames from weekly and higher continue to maintain bullish trends and remain generally bullish. The daily frame is closer to neutral, possibly signaling some horizontal development before the next directional move.

Now that the monthly doji needs to resolve, July becomes a very important month.

Curve

The June monthly close across the Treasury curve is quite striking. The 2Y yield closed with a strong bullish candle, while the 30Y yield closed with a strong bearish one. Everything in the middle remains mixed — neutral overall, but leaning bearish.

That is not a clean or healthy curve message. It suggests that pressure is concentrating at the short end, while the long end refuses to confirm.

In plain English, short money is gaining power again. Why would the market do that? Because the bond market does not look nearly as comfortable with the path ahead as the headlines would like us to believe.

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 it looks like wave ii could get extended.

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

As the monthly and quarterly frames closed slightly bullish, but still leaning neutral, the red count remains primary. However, the blue count for a larger correction remains on the table.

Spread 10Y-2Y – Risk of Recession!

As discussed earlier, the entire yield curve continues to show unhealthy development. As a result, in June, the 10Y–2Y spread recorded another outstanding signal — a Bearish Engulfing on the semiannual frame.

Considering the latest progression of Bearish Engulfing signals from the monthly to the semiannual frame, a move back into negative territory has now been upgraded from a possibility to an imminent risk. Timing remains the main unknown — perhaps 1–2 years.

Please refer to the April Monthly report for more details. All prior assessments remain intact.

Canadian CA05Y

I am afraid I am the bearer of unwelcome news for my Canadian compatriots.

The June monthly candle did not confirm May’s Bearish Engulfing — missing it by only a few basis points while still holding 8 EMA support. Tough.

Rates will probably get one or a few more chances to break down, but for now the trend remains bullish.

SUMMARY

The U.S. bond market remains structurally uneasy after the June close. While the very short-term message is mixed, the larger trend in yields remains generally bullish, and the curve continues to send an unhealthy signal. The main concern is not one isolated candle, but the broader message: the bond market still does not look comfortable with the path ahead.

If this pressure persists, it could keep financial conditions tighter than expected and become a headwind for equities, housing, credit, and rate-sensitive sectors. A firmer yield environment may also challenge the market’s assumption that policy relief is close or easy. In simple terms, bonds are still warning that the macro backdrop may be more fragile than the headlines suggest.

Canada is closely mirroring the U.S. setup. Canadian rates failed to confirm a clean bearish reversal in June, so the larger bullish trend remains intact for now. That keeps pressure on mortgages, borrowing costs, the Canadian dollar, and Bank of Canada expectations. Canada may get another chance to break lower, but unless the U.S. curve eases meaningfully, it will be difficult for Canadian rates to fully disconnect.

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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.