Bond markets had a volatile reaction to this morning's European Central Bank press conference.  Part of the problem is that Mario Draghi was seemingly arguing both sides of the QE debate.  On the one hand, he said that the committee had moved from "expectation" to "intention" when it came to expanding the balance sheet, but shortly thereafter said that the ECB didn't have enough info to make a decision and would have to wait to see how the slide in oil prices would ultimately affect inflation.

Near the end of the press conference, Draghi went back to the other side of the fence by saying that it would be illegal for the ECB NOT TO DO QE if QE was the only way for them to adhere to their mandate.  That kind of talk can only serve to confuse markets because no one truly understands how QE is possible under the current wording of the European Union Treaty (which prevents direct investment into sovereign debt markets by the central bank).  But somehow, there's a lot of belief in the marketplace that Draghi can pull that off.  It's fairly amazing, really.

At one point in the press conference, Draghi passed the mic to ECB Vice President Constancio who said there hasn't been a decision on QE yet.  Far from being seen as "QE negative," markets instead were taken by the fact that someone other than Draghi was mentioning it in an official setting AND that it included the word "yet."  Constancio would have to have said QE simply wouldn't happen in order for his comment to be viewed as anything other than another open door to the possibility. 

With that, the Euro fell and Treasuries rose.  Normally when it comes to QE, Treasuries rally, but when it comes to EUROPEAN QE, markets view the simple prospect of it happening as indicative of the EU's ability to indeed "do whatever it takes."  The fact that the EU is currently seen by most as not having that ability is part of what's depressing German yields and fueling those "global growth concerns."  So paradoxically, QE is now net-negative for the most secure sovereigns, but still positive for the weaker sovereigns that would likely see the direct investments (Italy, Spain, Portugal, etc.). 

By the end of the press conference, it was clear that markets would not be getting QE this year and that it wasn't even necessarily a done deal.  Treasuries rallied back both on that development and also with the passing of the morning's corporate debt issuance (which had weighed on bonds earlier).