Bond markets are vulnerable right now--perhaps more vulnerable than they've been for several months.  During that time, they've taken on an air of near-invincibility as the European Central Bank (ECB) was widely expected to be working toward a quantitative easing package. 

Enter the vulnerability.

The ECB went off half-cocked on their "QE announcement" yesterday--even going so far as to announce asset purchases and then to distinctly differentiate those from QE.  In other words, ECB President Draghi said 'we're doing these ABS purchases, but it's not QE, although we did talk about QE and we might do it! (I hope).'  

To be clear, Draghi didn't use those words, but that was the thesis.  He also referred to current interest rates as being at the lower bound, which is akin to saying 'this is as low as we're taking rates.'   That's never going to make bond markets happy.  

Long story short, it was a bit of a wake up call that the ECB's hands could be a bit too tied up to pull off the sort of large-scale QE first hinted at back in early April when headlines read: "ECB models €1 trillion QE program."

Here's why this is potentially serious.

From a technical standpoint, bond markets run the risk of making long term low yields as of the end of August.  Yields have been moving higher since then and even after the ECB cut rates yesterday morning, German Bund yields didn't get close to those late August lows.  In other words, we have a series of "higher highs" leading away from all-time lows in core European debt.  Traders can't help but wonder if we're now looking at all-time lows in the rearview.  I think most would agree we probably are NOT, but the possibility is disconcerting.

It's made more disconcerting by the fact that NFP is today, and NFP is the king of market movers--at least in terms of potential.  While the data has been overshadowed by Europe recently, we just now had the chance to witness Europe's special little plan, and it wasn't too impressive.  NFP could carry more weight as a result.  If it happens to be strong, it will push bond yields over a few technical lines in the sand, and all bets are off after that--at least in the near term.