Today's chart illustrates the liquidity challenges that crop up at this time of year.  The difference between last Friday and yesterday was really night and day.

We'll use the gap between MBS bid and ask prices to see how liquid the market is.  Naturally, if sellers want to sell and buyers want to buy at prices that are very close to each other, trades will be happening.  The wider apart these notions of the proper bid and ask prices, the harder it is to conduct business. 

In the MBS market, when things are humming along, buyers and sellers tend to stay within a tick of each other, with the occasional gap out to 1.5 ticks.  (To be clear, we're talking about a range of 1/64th to 3/64ths of a point, or 0.015625 to 0.046875.)  Yesterday's gap was 4 times as wide on several occasions, and at least twice as wide for most of the rest of the day.  

Anyway, all that to say that bond markets aren't too terribly tuned in on Christmas week.  That could change to some extent over the next 2 days, but not in a way that would allow us to compare this week to a normal week.  The result is a bit more potential bumpiness in trading levels.  It doesn't necessarily mean more day-over-day volatility (indeed, yesterday was unchanged), and it won't always cause intraday volatility, but if a buyer or seller HAS TO buy or sell in an illiquid market, it causes a bigger than normal move.  If that happens more than a few times in a row, we can end up with momentum that we wouldn't otherwise have seen.