Every time we have a big, nasty sell-off--not the garden variety 15-20bps over a few days, but kind that takes 60bps higher in several weeks and still looks like it has steam--I start to hear the same questions and see the same comments.  They go something like this:

"Why in the world are we still selling off?"

"How much longer can this even go on?"

"We're so oversold, that a bounce has to come any day now."

"This makes no sense.  I'm taking the rest of the day off to drink and play golf."

You get the idea.  Yes, big nasty sell-offs are few and far between.  If you're not paying attention, the extra big moves are always going to seem extra surprising, confusing and frustrating.  If you are paying attention, you hopefully picked up on the defensive bias over the past 2 months, and in fact, if so, you're free to go.  The rest of this post will simply recap things you already know, and it will do so by revisiting things I've said.  If you'd seen those before, and if I point them out again here, it might look like I'm doing that thing I hate where people go back and say "look, I said this!" 

The important "stuff" began in mid to late April.  Both Treasuries and Bunds had ground to a halt, and I wondered aloud if the technical resistance in German Bunds at 0.06 would be our next source of inspiration.  At the time, I was still of the mind that we were seeing a short term correction amid a longer term rally, but in any event, wanted to wait until FOMC at the end of the month to see what was what.

Apparently, European bond markets were waiting for the same thing.  After the FOMC dropped their calendar-based rate hike insulation (i.e. they were no longer saying "an increase in the target range for the federal funds rate remains unlikely" at the next meeting), German Bunds were off to the races the following morning.   Treasuries didn't follow suit thanks to month-end buying support, but by May 1st, the writing was on the wall--leading me to write such things as (all of the following is pulled directly from mid-day and recap on May 1st):

"That's exactly what we didn't want to see.  It speaks to a trading community that is determined to sell."

"It suggests an ongoing, deeply-rooted negative bias in bond markets.  Secondarily, it confirms that yesterday afternoon was indeed fueled by month-end bond buying."

"There's nothing left to say from an analytical standpoint.  We're now simply witnessing the bearish scenario play out. "

"Long story short, all of the cautionary hypothesizing we've been doing in April LOOKS like it's in the process of coming to fruition.  It makes sense to guard against that eventuality until it can be ruled out. "

But the most important observation was on May 6th, just after 5 days of heavy selling.  I noted that we'd soon see some exhaustion and that the following trading would be our decoder ring for the rest of the trend:

When that bounce happens, it will mark the beginning of a few very important days--days in which we'll get a glimpse of bonds' long term leanings.  If we're to maintain the 2015/2015 status quo, this bounce will be big and determined.  If it's not--and especially if it's very shallow and temporary--we'll be forced to confront the possibility that February marked the lowest rates of the year.

Long story short, the bounce only undid the previous 2 days of selling and it only lasted 2 days before getting blasted on the following Monday.  That's when it really became clear that markets were in the process of considering that April could have been "it" for the European bond market rally.    That is still the elephant (or gorilla?  or elephant-gorilla hybrid monster?) in the room.  Just this past Monday, the weekly opener was titled "why it's so scary."  Definitely read that if you haven't.

And for those of you who don't click links in pieces like this, the gist is that epic nature of the 2014 and early 2014 EU QE-driven bond market rally  made for a sharp correction in May (and so far in June).  Either we're about half-way through a much bigger move--one that rivals 2013 or 2010--or we're asymptotically approaching some sort of overhead support in yields near current levels in the hopes of consolidating for another push lower in the second half of the year.  I think it's safest for all parties involved to assume the latter, more rosy scenario, is wishful thinking.

Put another way: whatever pain we've witnessed since late April, plan on it doubling before this is over.  There's always a chance that it won't, but that's a surprise that's easier to live with.