If you missed it for some reason–and that’s entirely possible on an NFP day–there was an important dark horse market mover today, just a short while after this morning’s NFP release. When wires hit regarding the ECB modeling a €1 trillion QE program, a rally that had mostly run its course in bond markets, suddenly became reinvigorated.
This might sound like a big leap of faith to take on NFP day, but the fact that German Bunds (one of the main ostensible beneficiaries of Eurozone QE) completely took over the role of pacesetter from Treasuries speaks for itself. Bunds don’t just serendipitously overtake Treasuries in terms of volume and volatility on NFP days unless something other than NFP is to blame.
As such, we can really have no idea where bond markets would have ended up today without the QE news. Even if we take the stance that it was only a minor, temporary boost, it still started snowballs rolling that forced market participants to close out short positions (essentially “buying bonds” to prevent further losses, which in turn creates more losses for anyone left holding out, thus motivating them to buy as well).
On top of all that, equities markets got royally pummeled. Long-termers might not care too much since the pummeling took place from yet another all-time intraday high, but the fact is that so much selling pressure in stocks tends to at least have some positive effect on bond markets, all other things being equal (granted, that won’t always be the case depending on the source of market movement, but in today’s case, it wasn’t a “QE on/off” trade, and thus is eligible to give bonds a boost).
All of the above leaves the upcoming week in a bit of limbo. Will the ECB story have any more chapters? Will stock volatility be a consideration in the near term for bonds? is a +39k swing in NFP something that really justifies a prolonged rally for Treasuries and MBS? As a fitting caption for those questions, the rally puts trading levels right back in their recent indecisive range, as if to say “outlook uncertain, ask again later.”