Today is probably the most interesting of the year when it comes to long term implications for domestic bond markets.  If you think about it, things may have been awesome earlier in the year, but they were boring in terms of long term momentum.  All we could really observe was that the long term rally was intact until/unless European bonds made a decisive turn.  In fact, that's been the case since the Spring of 2014!

Sure, there have been some bumps in the road between now and then, but nothing like the past few weeks.  Interestingly enough, that's not due to anything that US rates markets are doing, but rather to the unprecedented selling spree in German Bunds.  While the sell-off began just over 2 weeks ago, it was the 6 most recent trading sessions that did most of the damage.  At no point in the modern history of German debt have 10yr yields risen so quickly in 6 days.  Here's the chart from yesterday's close:

If the chart doesn't do it for you, consider this: At yesterday's highest levels, Bunds had erased HALF of the gains from the Spring 2014 ECB QE draft--half of the entire rally in just 6 days.  It's impossible to overemphasize how severe this move has been.  There's very little to compare it to historically, so we don't have an applicable precedent suggesting yesterday's bounce will necessarily materialize into a bigger recovery.  IF it does, however, that may be all we need for Treasuries and MBS to have their own recovery.

But wait!  It's NFP day!  Let's not forget (and it wouldn't be too hard over the past few years) that European markets are also influenced by big movement in the US.  NFP days are one of the prime examples of that.  So here we have a big potential shift in European markets, a similar potential shift in US markets, and just the piece of data to push things one way or the other.  US rates are certainly primed for a positive push.

In fact, if NFP is weaker than expected and rates DON'T move lower, be very afraid.  Conversely, if NFP is stronger and rates still manage to move lower, there will be much rejoicing (yay...). The only really frustrating situation we could see would be if the data is stronger and we see some weakness that doesn't result in a break above the week's previous high yields.  In that case, the jury would still be out as to the status of the potential reversal.

All that having been said, I really feel like this selling streak has been 'too far, too fast.'  Granted, it never makes sense to bet on such things financial as markets have a sobering tendency to clobber logical bets, but this really seems like the product of an unfortunate confluence of factors as opposed to a wholesale shift in trading sentiment.  We'll know shortly.