The unemployment report was obviously less than expected. The market reaction was just short of total panic mode. Treasuries were grabbed across the maturity spectrum as equity futures fell defenselessly. The moves may have been exaggerated by the holiday closings but the action was shocking in tone. The return of Euro-Zone credit market stress contributed to the freak-fest.
In the days leading up to the report, we noted a jump in official references to "fire walls" - the new buzzword replacing "ring fenced". EZ bond markets resumed their declines in coordination with, in reaction to and/or in spite of the rhetoric. Our interpretation is money did not roll directly into US Treasuries during this rout as the Employment Report loomed. After the marginal release, market supply- often heralded as liquidity - was limited. 10 year futures have now round tripped the March rout and are basically unchanged on the year. The SP is 100 points higher. We think people have over reacted.