Things have been less than great for bond markets since May of 2013 when sentiment in the Fixed-Income sector seemed to turn on a dime.  In reality, the Fed had begun talking about tapering earlier in the year and Bernanke even gave it significant treatment in March (we broke it down in detail back in June).

The conclusion was that Bernanke's press conference was easy to dismiss.  If it meant anything at the time, markets didn't have the right kind of decoder ring to understand it.  The understanding grew exponentially in May, and the rest is history.

Now that we're past the point of economic data justifying Fed tapering, the obvious question is "what happens if we get bad data?"  Is Friday's jobs report bad enough to put tapering on hold? 

We're most likely to find that one bad jobs report means very little in the grand scheme of things and FOMC members have said as much.  Too, recall that the utterly deceptive 95k NFP private payrolls print that tricked markets into thinking Bernanke's March 20th comments were premature, ultimately was revised to 154k.   The following three reports printed at 176, 178, and 202k to boot!

Even if Friday's report is never revised higher, we know enough about what's important to the Fed to know one report won't make the difference.  If it's joined by 2 upcoming weeks of data that are decidedly awful, then another $10bln reduction in purchases becomes less of a certainty, and the depth of the correction in bond markets may reflect that. 

Thankfully, that means we can hope for some good old-fashioned correlation between important economic data and trading levels.  Left to their own devices, bond markets should be predisposed to carve out a wider sideways range.  It could be very wide, actually--to the point where the 'exploratory' move to the more favorable end looks like a rally.

In fairness, it would be a nice little rally, but if that happens, keep in mind that not only would we have a long way to go before challenging the longer-term uptrends, something would simply need to change about the economic landscape, and in a much bigger way than we've seen since mid 2010 (when private payrolls climbed into positive territory).