Traders are watching out for headwinds from the energy market as well as the reactions across markets as they countdown to the Federal Reserve's rate meeting next week.

There is a dearth of data Tuesday, with just the NFIB small business survey at 6 a.m. ET and JOLTs job openings data at 10 a.m., so the action in financial markets will be what traders watch.

Changes in the short-term funding market are one element to keep an eye on, as yields move ahead of the Fed's plans to liftoff from zero interest rates. The Treasury auctions 1- and 12-month T-bills as well as 3-year notes Tuesday. There is also API oil inventory data late in the day, ahead of Wednesday's government data.

Energy markets were the standout Monday, as volatile oil tanked, taking with it energy stocks. U.S. crude futures fell 5.8 percent to $37.65, near a seven-year low, after OPEC last week stuck by its policy of letting the market set the price. Natural gas and heating oil were both about 5 percent lower, tracking oil's fall but also because the long-term forecast showed no signs of cooler weather to support heating fuel demand.

The S&P 500 closed down 0.7 percent Monday, at 2,077, but the S&P energy sector was down 3.7 percent.

Treasury prices rose, while yields fell, and investors moved back in to dollar positions after last week's rout. The euro edged lower, trading around $1.08.

"I'm going to be watching these auctions," said Justin Lederer, interest rate strategist at Cantor Fitzgerald. The yields on T-bills climbed Monday, as traders anticipated that the Fed would raise rates for the first time in nine years when it meets next Tuesday and Wednesday.

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The three-month T-bill yield was at its highest level since 2009, and the six-month T-bill yield eclipsed a 2008 level.

On Monday, the Treasury sold $28 billion in 3- month bills at an interest rate of 0.28 percent, the highest at auction since March 2, 2009. Later in the day, the 3-month yield was 0.24 percent. On Tuesday, T-bill auctions are at 11:30 a.m. ET and the Treasury auctions $24 billion in 3-year notes at 1 p.m.

"The year bill is about 8 basis points higher today, and between supply and the Fed possibly raising rates, you're seeing a lot of pressure," said Lederer.

With the lack of data and no Fed speakers in the diary, the Treasury market is keying off other markets, and it has been following European sovereigns, particularly after the European Central Bank (ECB) last week held off on some of the more aggressive easing expected by the market.

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"It's definitely following the lead from the other markets. Today it was the lead from the energy complex," said Lederer.

Another area market traders have been watching ahead of the Fed is the junk bond market, where bonds of energy and commodity-related companies have underperformed, dragging on broader indexes.

"My uncertainty is I don't know how people are going to react when the Fed raises rates. Until it happens, you're not really sure," said Rich Lindquist, global head of high yield at Morgan Stanley Investment Management. "My equity concern is when the Fed raises rates how is the equity market going to react."

Lindquist said the high yield market should be quiet up until the Fed meeting, but noted that oil was a wild card for the market.

"I think the high-yield market is definitely signaling something menacing for energy, metals and mining. Those type of spaces have been in a spread-widening mode for over a year now. Other certain sectors are probably fine," said Lindquist.

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"Typically food, beverage, packaging, things that benefit from a decent economy or benefit from low oil prices" are doing better. That would also include companies related to automobile manufacturing.

"I think given where yields and spreads are, I'm not saying we're going to rally any time soon, but I think you're being compensated for the risk in those sectors that are going to have higher defaults. If you look at a lot of energy, metals and mining names, most of those that have issues are already trading at distressed prices," he said.

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According to Bank of America Merrill Lynch, high yield spreads were at 637 on Friday, but when energy and materials were eliminated the spread was 526.

To protect against the rate rise, Lindquist said he's buying bonds with shorter duration and higher yields than the indexes.

Update: Adds JOLTs job openings data release

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