Technical Analysis
U.S. 10-Year Government Bond Yields Forecast — Elliott Wave and Fibonacci Price Update
Introduction:
The U.S. 10-Year Government Bond Yields hold paramount significance for both real estate and capital market investors, serving as a pivotal factor in shaping investment strategies and risk management. In this technical analysis, we delve into the complexities of the bond market, employing Elliott Wave and Fibonacci Price techniques to forecast future rates and guide investors through the evolving landscape.
Long-Term Perspective:
U.S. Government Bonds 10 YR Yield — 1week Chart
Examining the multi-year perspective on a weekly chart, the treasury yields broke through the red trigger line in the summer of 2022, marking the end of a more than four-decade-long triple zig-zag (w)(x)(y)(x)(z) correction. This correction originated from the Paul Volcker Fed Area top in September 1981. A new era of rising rates has commenced, with the first leg up forming an overshooting abc wave, nearing its maximum extension and completing the initial wave (I) in green. Anticipating intermittent corrections, I project this trend to persist over the coming years and decades, potentially reaching new yield targets between 7.21% and, during later extensions, up to 9.66%. The pivotal green trigger level at 5.289% must be significantly breached to the upside, confirmed by the close of a weekly chart candle above this level.
Fundamental Implications:
This seemingly bold forecast aligns with the logical consequences of a debt-laden government resorting to continuous money printing to address market emergencies and finance escalating budget deficits. The resultant oversupply of money, competing for a finite amount of goods, is anticipated to drive up asset prices, trigger inflation, and compel the government to offer increasingly higher interest rates on their debt to attract new investors.
Short-Term Analysis:
U.S. Government Bonds 10 YR Yield — 2h Chart
Since the last March 31 update following hotter-than-expected inflation readings, yields of 10-year Notes have advanced deeper into the Pink resistance zone, surpassing the 0.618 (4.548%) retracement and moving forcefully towards the 0.886 (4.880%). In this update, I propose a very bullish impulsive lower-level wave count for the ongoing Red wave (x) extension. If completed with high certainty, this count would negate the primary scenario and trigger my alternative scenario (white wave count), signaling a direct path to ever higher interest rates and fading hopes for future rate relief near or below the 4% level.
There appears to be only a chance left for the proposed impulsive wave count to be wrong if rates don't surpass the April 16 top at 4.696% and continue to retreat below the April 10 low at 4.342%. In this case, we could count the rate action since surpassing the 0.618 (4.548%) resistance as an expanded flat correction, opening up the track for the final Red wave (y) to unfold.
With these recent developments, I raise the probability for the white alternate scenario to be triggered to now 40%. At the same time, if we continue with the primary scenario due to the deeper correction into the Pink target zone, we can already claim today that the wave (y) advance for lower future rates will be less prevalent and might not reach the originally anticipated 3.252% level but rather only slightly extend past the 3.783% red trigger line.
Investment Considerations:
Investors should take note that the upcoming primary scenario wave (y) down may present one of the few and last opportunities for "lower" rates in a potentially extended timeframe. Anticipate a surge in real estate transactions and refinance activities as this information becomes mainstream, potentially reverting to slower transaction volumes akin to 2023 afterward. The question arises: Is this the new normal for the foreseeable future?
Alternative Scenario:
As described above the recent weeks' rate action reveals the possibility of the (w)(x)(y) correction being prolonged in time, with increased upside pressure to challenge the extension of wave (x) within the pink target box. I now acknowledge a further increased 40% possibility (from 30% originally) of the alternative wave count scenario. The December 2023 yield low around 3.783% could have already completed a double zig-zag correction. This suggests that rates at this level or below may not be revisited anytime soon. If yields breach the green trigger line, closing a full weekly candle above the 5.029% level, the primary scenario would be invalidated, and this alternative scenario could become the new guiding principle for the future.
Wave Table
Pivot:
5.289%
My Preference:
Hold. The ongoing lower level downward impulse is fading out.
Alternative Scenario:
Below 3.783% look for further downside below 3.252% with new targets to be announced in the next update.
Comment:
Oscillator indicators are still indicating upwards trend reversal divergence on the daily time frames.
Trend Reversal Zone (TRZ):
TRZ1 4.256% (achieved)
TRZ2 4.402% (achieved)
TRZ3 4.548% (achieved)
Price Targets Primary Scenario (Support Levels):
S1 3.783%
S2 3.252%
Price Targets Alternative Scenario (Resistance Levels):
R1 5.029%
R2 5.480%
R3 7.216%
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