Tokyo and London are back in the office today after yesterday's holiday closures.  EU yields moved modestly lower from their highest levels in roughly 2 months.  This helped smooth out Treasury volatility in the overnight session, but domestic traders have had other ideas.  Even as EU bonds continued to rally, early domestic accounts remain more interested in selling. 

Once again, corporate bond issuance is a key consideration with multiple deals announced already this morning and more expected ahead of the earning's blackout that starts on Thursday (here's why this matters).  This isn't the only market mover in town though.  Traders are also positioning for the risk that omicron helps accelerate the endemic phase of covid.  Many experts are calling for this wave to peak before the end of January unlike last winter where there were 3 peaks in Nov/Dec/Jan.

In the bigger picture, the paradoxical optimism surrounding omicron is pushing yields to the upper boundary of their long-term consolidation pattern (seen in the chart below).

The silver lining (or perhaps it's a bronze lining) is that MBS tend to outperform Treasuries when rates are rising at a reasonably quick pace.  The following chart shows the spread between MBS yields and  Treasuries.  To account for the fact that the average mortgage doesn't last 10 years, it uses the 5/10yr Treasury blended rate, which is fairly common in the analytical community.