Remember July? Covid was a fading memory and the light was clearly visible at the end of the pandemic tunnel. Then came Delta. It served as a painful lesson about the potential impact of covid variants. Now we have B.1.1.529. Like the MU variant, it may prove to be no big deal. But markets are nonetheless spooked to hear things like "could be worse than Delta." Spooked = bad for stocks and good for bonds. Holiday-light trading conditions are likely making the moves bigger than they otherwise would be.
In the bigger picture, rates arguably already have an eye on the the reversal and modest increase in covid cases over the past few weeks. It's far too soon to jump to any conclusions, but IF this new variant turns out to be as bad or worse than delta, Today's trading represents a mere fraction of the total potential volatility.