Many are perplexed by the 'strength' in Treasuries as yields collapse despite a headline payroll print propagandized (choosing to be non-believers in the bond-market's all-knowing eye). As Deutsche Bank notes, for well established reasons, a multi-decade Pavlovian response to much stronger than expected US data has been higher Treasury yields, which usually provides some USD lift. Last Friday, this plainly did not work, which proved extremely costly for many in the trading community. At a minimum Pavlov’s dog choked, but is Pavlov’s dog dead? The short answer is no, but Pavlov’s dog may have taken off the summer.

 As Deutsche Bank reports,

One explanation for the surprising bond and FX response to the NFP data has been to fit the data to the market price action. This will prove wrong. The April employment was genuinely strong. The last 3 months payroll changes are all above 200K and consistent with some growth acceleration beyond weather distortions. Even the most disputable aspect of the report, the decline in the unemployment rate was achieved with a decline in participation rate, but only back to December levels. US data did not support any ‘capitulation’ from the strong US growth story.