Last Tuesday was not my favorite kind of day when it comes to discussing reasons for bond market movement. The tax bill was in the process of being passed in Congress, thus almost ensuring that anyone who investigated the massive sell-off in bond markets would make a connection between the two.  The only problem was that the tax bill had nothing to do with the bond market sell-off.

Unfortunately, there wasn't any great way to approach an explanation of the sell-off without bringing the market's more abstruse goings-on into the mix.  Specifically, we were dealing with the rapid evaporation of liquidity ahead of a holiday weekend as well as a widespread closing of certain trading positions that had helped longer-term rates.  

There was every possibility that last week's sell-off was simply a byproduct of year-end position squaring in thinly-traded markets, but it took a day like today to prove it.  Reason being: today is the exact same sort of day, but this time, there's no glorious headline to take on the Red Herring role.  The tax bill is still a done deal, yet bond markets found a reason to rally roughly as much as they sold last Tuesday.  The reason is the same as last week's: year-end position adjustments exacerbated by light liquidity and automatic trading triggers (i.e. sellers forced to buy after a certain amount of strength).

Neither day is of major consequence in the big picture.  This is all just late December tradeflow volatility.  It's not glamorous to analyze or explain, but that doesn't make it any less of a culprit behind this wax-on/wax-off 2-week move.