The last 2 weeks have seen elevated volatility for the bond market. Omicron concerns took yields lower, but the gains reversed as concerns moderated. We could overanalyze the minutia or simply appreciate the fact that yields are right in the middle of a massive consolidation pattern that's been in play for most of the year. In general, it marks the intersection of trading levels that are suppressed by the pandemic and those that are mostly back to business as usual.
Breaking out of that pattern would probably take more news than we can possibly receive this week, but if anything could come close, it would be Wednesday's Fed announcement--the one that likely communicates an accelerate of the tapering schedule.
There's some debate over the pace of the probable acceleration. The simplest guesses are for a basic doubling of the current pace. $10 and $5 bln reductions in Treasuries and MBS each month would become $20 and $10 bln respectively. But the possibility of a 50% increase is also being discussed. The latter would leave the new pace of reductions at $15 and $7.5 bln per month.
If the Fed opts for the slower version, it should benefit MBS relative to Treasuries as recent MBS underperformance has been exacerbated by the start of tapering.
Econ data is in decent supply this week, but sparse in terms of top tier market movers. Retail Sales on Monday morning is the only big name on the list and even that has failed to provide much inspiration of late. As such, the focus is intently on the 2pm Fed announcement (and dot plot) at 2pm on Wed afternoon.