We had second thoughts about shorting the 30-year bond yesterday after recalling how it went berserk the last time payroll figures were released. Good thing, too, that we passed up the trade. Although Friday’s action wasn’t quite so unnerving as last month’s, the March contract still managed to cover a 1-1/2 point range in mere minutes. As a result, our rally target, a hidden pivot at 115^17 that was first advertised here a month or so ago, was pulped in mere seconds as the futures made their way to an intraday high nearly a point above it at 116^07. 

The proximal cause of the market’s histrionics was a report that job growth in January was pretty anemic. Non-farm payroll grew by a reported 146,000, versus expectations of 200,000. We’ve stopped wondering who the bozos are whose expectations seem so crucial, on the first Friday of each month, to the behavior of a trillion-dollar market. They seem to pull a six-digit number out of thin air, and their predictions have been anything but oracular. These guys can’t be using a dart board, because if they did, their estimates would probably be more accurate.

A Bull's Delight

In any event, we are obliged by yesterday’s thrust to come up with an even loftier price objective for the 30-year futures.  The chart below features a new target that should delight bond bulls, a group so small that we could probably all squeeze into the back seat of a Mini Cooper. The target is 118^19, nearly two point above Friday’s settlement price. We’ll try to short that number when the time comes, of course. But until then, it will be tempting to speculate on the forces that could conceivably conspire to push long-term rates yet lower. My guess is that mounting evidence of a global economic slowdown will soon congeal, confirming a statistical picture of a U.S. “recovery” that has produced relatively few jobs and zero income growth. Because the world is counting on Americans as never before to keep on spending, this could bode ill for global GDP. In the meantime, we can only wonder what the bonds foresee that has continued to keep them so very buoyant.

(Click on image to enlarge)