Does Japan's New Rate Policy Change Anything For Us?

Today's dominant market mover occurred in Japan early in the overnight trading session.  The Bank of Japan (BOJ) made a change to its rate targeting policy to allow 10yr yields to go 0.25% higher than before.  This resulted in a spike of roughly 20bps in Japanese 10yr yields and just under half that for US 10s.  To be sure, the domestic impact was exacerbated by light holiday-week trading conditions, but still big enough to argue against being brushed aside as an inconsequential event.  The key question is whether today is/was the only day of consequence.  The answer depends on whether today's policy shift paves the way for more aggressive shifts in the coming months.  For now, we're treating it as a one-off, but adding a repeat performance to the list of potential threats in early 2023.  

Econ Data / Events
    • Housing Starts
      • 1.427m vs 1.400m f'cast, 1.434m prev
    • Housing Permits
      • 1.342m vs 1.485m f'cast, 1.512m prev
Market Movement Recap
08:39 AM

Sharply weaker after BOJ surprise overnight.  10yr up 7bps to 3.662 and MBS down just over 3/8ths. 

11:30 AM

Modest recovery from weakest levels from 9:30 to 10:30am ET.  Leveling off since then with MBD down 14 ticks (.44) and 10yr yields up 9bps at 3.68%

02:43 PM

Flat trading pattern remains after early weakness and modest recovery.  Short end of the curve outperforming (2yr in positive territory).  10yr yield up 9.2bps at 3.682.  MBS down 3/8ths of a point.  

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