In certain circles, much was made of overnight news that the Bank of Japan would be buying fewer bonds.  That's about as far as most news stories delved into the topic, despite it being more complicated than bond-buying news in the US.  Let's break it down:

In the US, the Fed lays out a guaranteed amount of bond buying that will occur each month.  The Fed has also set in motion a guaranteed schedule of balance sheet reduction.  Specifically, they will reinvest bond trading proceeds only up to the extent those proceeds exceed gradually rising caps (currently rising at $6bln/month for Treasuries and $4bln/month for MBS).

The Bank of Japan (BOJ) lays out a more detailed menu of bond buying options but with more flexibility on the amount.  For instance, it's most recent schedule (feel free to dive in!) says it will buy "about 150-250" billion Yen in Japanese government bonds with maturities between 10 and 25 years, on 5 occasions throughout the month.  Today was the first of those 5 occasions and the BOJ bought 190 billion Yen.

You may be thinking "so what's the big deal?!  That's pretty close to the middle of the little range, right?"  

You are correct.  190 is indeed between 150-250.  The ostensible source of market panic is the fact that 190 is 10 billion Yen less than the last buying operation in late December (that's about $88 million USD by the way).

Long story short, it was the fact that today's announced bond buying amount was smaller than last time, even though it was well within the stated range.  Looking at overnight bond market momentum, it's quite clear that this wasn't a huge deal for Treasuries or other government bond markets no matter how many traders wish to make that case.  Was it a deal?  Sure.  It had an impact.  Was it the source of today's big selling spree?  Nope.

Today's big selling spree was simply what was on the table after the tablecloth was dramatically removed.  Today was the first trading day of 2018.  We've been talking for more than a month about "the 2nd week in January" being the first potential unveiling of 2018's first major dose of bond market momentum, and quite simply, that momentum stinks.  It was was a growing risk based on recent weakness, but it was confirmed today.  

You may also hear that oil prices played a role today.  I'm typically not a fan of that explanation, but in today's case, they tie in well to the rise in inflation expectations discussed in the Day Ahead.  

MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
FNMA 3.5
101-30 : -0-15
10 YR
2.5512 : +0.0692
Pricing as of 1/9/18 5:41PMEST

Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
5:01PM  :  ALERT ISSUED: One Last Negative Reprice Consideration
9:42AM  :  ALERT ISSUED: Reprices Now Becoming Likely for Some Lenders.
9:27AM  :  ALERT ISSUED: Some Lenders Could Already Consider Negative Reprices
8:45AM  :  Selling Ramps Up Into Domestic Trading

MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Matthew Graham  :  "you have to satisfy the traders who are waiting for cheap enough prices before they re-commit. I'm not sure if today is quite cheap enough for a definitive value-buying opportunity. Plus, is there going to be an infrastructure spending bill?"
Matthew Graham  :  "I'm not quite ready to go there, Manny"
Manny Gomes  :  "MG - so floating could pay off at current levels?"
Matthew Graham  :  "a lot of bond traders think long-term yields will not skyrocket and are simply waiting for an entry point"
Edgar  :  "true; although I think just about every bond trader thinks (again) yields are going to sky rocket; they seem to have this assumption that yields have to go up. I think too much of a one sided trade that will end very badly for a lot of people - we're about to enter (in the next 12-18 months) an epic bond rally as we see the weight of our massive amount of debt, low wages and political gridlock continue to prevent sustained economic growth. Once I start hearing there is no hope for us, then I'll start believing in this so called bond bear market that has been coming for decades."
Sergio Szyrko  :  "seriously, what the thing is to brace for it when we read the morning updates, but it still hurts when we start reaching these levels"
Hugh W. Page  :  "Getting scary. Not far away from a pretty key level in the10 yr now aren't we? If we break into the 2.60's is the next stop 3 or thereabouts?"
Sung Kim  :  "okay, thanks MG, you really do such a fine job helping us filter out the noise"
Matthew Graham  :  "I definitely wouldn't blame Japan. Sure, it contributed to overnight weakness to some small extent, but not a big picture motivation"
Sung Kim  :  "wait, so can we blame Japan for this debacle of a day?"
Sung Kim  :  "I cannot agree anymore Geoff - well said"
Geoff Allison  :  "days like today that I'm glad to be an MBS member. Knowledge = power"