We knew that volume and liquidity would be ramping back up after the holiday break (which is technically still going through this weekend for many) and that the increased activity could bring an increased bias in one direction or the other.  But yesterday's relatively strong rally was inconclusive as yields unsuccessfully challenged both the ceiling and the floor of their most recent range (1.95% and 1.86% respectively).

That is changing today, but not due to reasons that fall under the category  "new year, new momentum."  Rather, it was unexpected overnight news regarding potential military escalation between the US and Iran (covered in more detail in this update on MBS Live) that set the tone.  Geopolitical risk flare-ups tend to benefit the bond market and this is no exception (although Treasuries benefit much more than MBS).  But despite the gains, the bigger picture consolidation is still very much intact.

Geopolitical headlines may be the biggest market movers in the coming days, but we'll get at least one opportunity to see if domestic econ data can have an impact with this morning's ISM Manufacturing numbers at 10am.