The 10-year US government bond yield has reached levels last seen in 2007 and we all know what happened the year after that. This is not to say that we expect history to repeat itself and that we expect another crisis in 2027. The US economy and especially the stock market have shown impressive resiliency in recent years. In less than half a decade, the bulls shrugged off Covid, inflation, rising interest rates and Trump’s tariffs. They’re doing it again now with the Iran war, surging oil prices and disappearing Big Tech free cash flows.
The 10-year yield is just one of many moving pieces in the machine of the global economy. Instead of trying to predict where each piece is going to land, which is next to impossible, let’s put this one variable under the Elliott Wave microscope.
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The daily chart of the 10-year yield shows that the current surge to over 5.27% seems to be part of the fifth and final wave of the five-wave impulse, which began in 2020. We’ve labeled the pattern 1-2-3-4-5, where the five sub-waves of wave 3 are marked (i)-(ii)-(iii)-(iv)-(v) and two lower degrees of the trend are visible within the structure of wave (iii).
The 10-year yield then spent 2024 and 2025 in a narrowing range between roughly 4.8% and 3.6%, producing a triangle correction in wave 4. According to the theory, and supported by what we’ve seen in practice over the years, triangles precede the final wave of the larger sequence.
Investors should be careful not to extrapolate the recent past into the future. Upside targets near 6% make sense in wave 5, but if this count is correct, a bearish reversal can then be expected. Since corrections usually erase the entire fifth wave, the 10-year yield is likely to fall back to the support of wave 4 below the 4% mark.
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