According to the Bank of America, there are worries about the bond market of $24 trillion will bring a new crisis in the economy as well as in assets since the FED’s tightening policy is going to be accelerated. As many financial analysts at Bank of America support, the ‘’biggest’’ bear market of all time has come and is already there. And the reason is that the bond market considers the most liquid of all asset classes. So, with the overall opinion that prices haven’t discounted the consequences of inflation yet, despite the ongoing sell-off in the stocks the worst-case scenario would be for the market to dry up.

The investment sentiment is the worst since the ‘’Great Recession’’ in 2008, and the US bond yields are at a historic high. The US unemployment rate is expected to be between 4%-5% in the next quarters.

103 years ago, in the Treaty of Versailles – terms of Peace at the end of World War I -, the Treasuries were down less than where are now. If the demand for government bonds is falling, the same is happening with the liquidity which in turn destabilizes the transactions regarding the spreads. The volatility of the market will rise, and the ‘’chain’’ will break out, because if the bond market doesn’t work, then no other market does.

The 10-year US Government bond yield is at 3.76% whereas the 2-year at 3.8% proving the inverse of the curve which confirms bearish signs. Usually, the bonds that have longer duration tend to have higher yields.

From the Elliot Wave perspective, let’s take a look at the weekly chart of Bank of America (BAC).

The historical highs were achieved in 2006 at $55.08 just before the subprime crisis began, and against $2.58 in March 2009 the stock moved significantly higher with a motive wave structure but not able to reach the previous high. We think that stock made a leading diagonal, and that price is now headed for a deeper pullback. First support is at $17.85, followed by $10.80.

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