Friday's NFP reaction was fun, and then perhaps a bit painful. The data itself was abhorrent--coming in weaker in every imaginable way and without any saving graces. By that time--8:30am on Friday morning--bond markets had already been sort of 'dragged' into better territory by external factors. This was seemingly taking place against their will judging by the generally weaker performance during domestic trading hours that just barely failed to counteract the strength from the overnight trading session.
With all that as context, suffice it to say that any further improvements would take some doing. Market participants were approaching NFP from a more bearish point of view (for bonds), looking to take any reasonable opportunity to take yields back up a bit.
But the data was so bad that there wasn't any singular opportunity for traders to book those profits or take out new short positions. Instead, the weakness was forced to come gradually, and only after significant strength following the data.
So yes... we were left with some unsightly losses in the afternoon, but where did those leave us the broader context? It turns out, if you zoom out to only a modestly wider frame of reference, bonds are actually trending quintessentially. Just a few weeks ago, I lamented the positioning of the MACD with both lines right on top of each other and both right at zero (that's about as 'middle of the road' as it gets). We could only hope that the signal line would cross lower and the positive trend would ensue. Indeed it has, and in this context, Friday morning's strength was a bit too hot.
Bonds will get an opportunity to reflect on whether or not they really want to be rallying consistently, or if they've simply been through a series of supportive events that's unlikely to continue. I think the afternoon weakness on Friday gives us the hint/reminder that many market participants will take any opportunities to push back on unexpected strength. There won't be much by way of data this week to inform those decisions, but the most important report will be one of the first--ISM Non-Manufacturing this morning at 10am.
