"Holiday Mode" Cuts Both Ways

Around Thanksgiving and then again after the December meeting, you'll see us increasingly reference "holiday trading mode."  This term is a bit of a cop out from an analytical standpoint.  Sort of like your friend that says anything can be cured by improving your microbiome.  Sure, there's some relevance there, but there are also other things going on in most cases. 

Holiday mode, at its core, means only a few things: lower liquidity, higher risk of random movement, lower volumes mixed with punctuated periods of higher volume as traders position for year-end.  Due to the uncertainty of the 2nd half of December, traders who are able to wrap things up early are more likely to do so by the end of this week.  If they had open "long" positions, that would mean some excess selling pressure. 

All other things being equal, just as was the case with the slightly higher range at the end of November, bonds are feeling out a new, lower range in December thanks to CPI data and the softening of the Fed's pace of tightening. During "holiday mode" any trading inside the 3.41 to 3.62 range is effectively meaningless.  While roughly 20bps in yield may not seem meaningless, that's the nature of the game in 2022.  It's really a very small cross section of the ground covered in just the past 2 months.  Looked at another way, 20bps of movement occurred in a single day on Tuesday (CPI day) and every bit of trading since then has been contained inside that range.