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Bond Report: 2-year Treasury rate leads yields lower as Russia gets hit by more sanctions over Ukraine

Treasury yields fell Monday as investors showed renewed appetite for safe havens after the U.S. and its allies added new sanctions against Russia over the weekend as a result of its invasion last week of Ukraine.

Adding to jitters, Russian President Vladimir Putin on Sunday put the country’s nuclear forces on high alert in response to the global backlash against the invasion.

What are yields doing?

The yield on the 10-year Treasury note
TMUBMUSD10Y,
1.920%

fell to 1.915%, down from 1.984% at 3 p.m. Eastern on Friday. Yields and debt prices move opposite each other.

The 2-year Treasury note yield
TMUBMUSD02Y,
1.515%

was at 1.512% versus 1.584% on Friday afternoon.

The 30-year Treasury bond yield
TMUBMUSD30Y,
2.247%

declined to 2.24% from 2.294% late Friday.

What’s driving the market?

Investors sold equities and other assets perceived as risky, jumping back into traditional havens including Treasurys. Russian assets were slammed, with the ruble plunging to an all-time low and the country’s central bank doubling its official interest rate to 20%.

Read more: Russian central bank lifts interest rates to 20% as ruble plunges over Western sanctions

The U.S., EU, U.K. and Canada on Saturday pledged to remove “selected” Russian banks from the SWIFT interbank messaging network, increasing sanctions on Moscow. European countries, who had previously appeared reluctant to removing Russian banks from SWIFT, moved in favor of more aggressive actions after an initial round of sanctions appeared to have little effect on Putin, The Wall Street Journal reported. The measures also targeted Russia’s central bank.

Russian forces continued to press into Ukraine but news reports said they continued to struggle to make headway, with Ukrainian forces continuing to fend off attacks on the capital, Kyiv. A delegation led by Ukraine’s defense minister was set to talk with Russian officials at Ukraine’s border with Belarus, though prospects for a cease-fire appeared uncertain, according to the Journal.

Meanwhile, investors were wrestling with the implications of the invasion on the outlook for inflation and how central banks, particularly the Federal Reserve, will respond. Commodity prices have surged in the wake of the invasion, with crude oil
CL.1,
+4.56%

BRN00,
+4.59%

trading near $100 a barrel, while a jump in wheat
W00,
+5.06%

and corn
C00,
+3.55%

futures stoked food-inflation worries.

January data on advance trade in goods is due at 8:30 a.m. Eastern, while a February reading of a Chicago-area purchasing managers index was set for release at 9:45 a.m. Atlanta Federal Reserve Bank President Raphael Bostic was scheduled to speak at 10:30 a.m.

Fed Chairman Jerome Powell will testify before a House committee on Wednesday, while employment data will roll in this week, culminating with the official February jobs report on Friday.

What are analysts saying?

“President Putin raising the alert on its nuclear deterrent only illustrated a further escalation in the conflict. At the same time, markets are pondering the potential consequences for the economy and financial system after western allies decided to decouple some Russian banks from the Swift payment system and took restrictive measures limiting the Russian central bank to use of its international reserves,” wrote analysts at KBC Bank, in a note.

“At the end of last week, it looked that the key [economic] data to be published in the U.S. (payrolls) and in Europe (inflation) this week could regain some market attention ahead of the upcoming March Fed and ECB meetings. However, short-term trading in U.S. and even more on European markets will be dominated by a new risk-off wave,” they said.

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