Although MBS have been underperforming, the broader trend in the bond market remains in good shape--especially in light of current headwinds.  The most notable headwind is the general optimism surrounding the omicron variant based on the weekend's news cycle.  Beyond that, we're never surprised to see bonds acting a bit defensively in the days leading up to a Treasury auction cycle.

The outright level of weakness is tolerable for now, but we'll need to keep an eye on the pivot point at 1.41% in 10yr yields.  Breaking below that level facilitated a snowball rally on Friday--one that we suspected was exaggerated by week-end position squaring.  If yields hold below 1.41 despite the better new on omicron and the impending auction cycle, it would be a fairly bullish statement for bonds.

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Technical aside, directional guidance may end up coming down to the stock market.  Correlation has been very high since omicron hit the headlines.

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There are no significant economic reports on tap today.  We'll be waiting for Friday's CPI as the week's only top tier release.  Before that, the 10 and 30yr Treasury auctions (on Tuesday and Wednesday respectively) are also capable of sparking bigger reactions in bonds.