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Bond Report: 10-year Treasury yields rise above 2% as market monitors Russia-Ukraine, awaits U.S. inflation reading

Treasury yields rose Friday morning as investors tracked Russia’s assault on Ukraine and awaited an important update on U.S. inflation.

What are yields doing?

The 10-year Treasury note
TMUBMUSD10Y,
2.007%

yields were at 2.004%, up from 1.969% at 3 p.m. Eastern Time Thursday.

The 2-year Treasury note rate
TMUBMUSD02Y,
1.627%

was at 1.616%, up from 1.544% a day ago.

The 30-year Treasury bond yield
TMUBMUSD30Y,
2.309%

was at 2.322%, up slightly from 2.291% on Thursday afternoon.

What’s driving the market?

Yields were buoyant on Friday amid mixed reports tied to the conflict in Eastern Europe. Russian forces were reportedly closing in on Kyiv and Ukrainian President Volodymyr Zelensky vowed not to surrender the country’s capital, while reports indicated that Moscow might be willing to hold talks to possible resolve animosities.

The attack in Eastern Europe began early Thursday as Russian President Vladimir Putin said he had ordered military operations, brushing aside Western sanctions and warning other countries that any attempt to interfere would lead to “consequences you have never seen.”

The current bout of selling in bonds, which was nudging yields up, comes as investors await an update on U.S. inflation, the personal consumption expenditure price index, the Federal Reserve’s preferred measure of inflation.

Russian belligerence in Ukraine and the sanctions against Moscow, as the global community responds to the unprovoked attack, are raising the risks of an energy supply shock, which some observers say could send the annual U.S. inflation rate up to 10% at some point from 7.5% as of January.

Market-based projections point to a near-certain chance that the Federal Reserve hikes benchmark interest rates, which stand at a range between 0% and 0.25%, next month, and proceed to consistently raise rates.

What are strategists saying?

“In an important look back at January’s US economic growth, data today bring personal income, spending and PCE inflation,” wrote Jim Vogel, analyst at FHN Financial Markets.

“With heightened sensitivity around the March FOMC meeting this week, interest rates will react accordingly. Next week delivers a heavy calendar of US data and Fedspeak in front of the blackout before the FOMC in the middle of March,” Vogel wrote.

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