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Bond Report: Treasury rates move higher amid flight to safety as Russia orders troops into two Ukraine regions

Yields for U.S. government debt were higher Tuesday morning, well off overnight lows, as the market reacts to Russian President Vladimir Putin’s deployment of troops into Ukraine in support of pro-Russian regions of the Eastern European country, stoking fears of an invasion.   

U.S. markets were closed on Monday in observance of Presidents Day.

What are yields doing?

The 10-year Treasury note
TMUBMUSD10Y,
1.945%

yields 1.944% but had touched a low of around 1.85% overnight, compared with 1.930% at 3 p.m. Eastern Time on Friday. Yields fall as prices for debt rise.

The 2-year Treasury rate
TMUBMUSD02Y,
1.528%

was at 1.533%, at last check but had it an intrasession nadir at around 1.43%, versus 1.468% at the end of last week.

The 30-year Treasury bond
TMUBMUSD30Y,
2.254%

yields 2.254%, compared with 2.249% on Friday and an overnight low at 2.18%.

What’s driving the market?

Investors are on edge with the threat of geopolitical conflict looming in Eastern Europe.

The flight to safety, which was on display overnight, has abated but Treasury yields had been yanked considerably lower earlier as market participants weighed the implications of a possible full-blow invasion of Ukraine by Russian forces.

Tensions remained elevated after Putin ordered Russian troops into Donetsk and Luhansk, pro-Russian regions in Ukraine on Monday. Moscow tied the actions to their recognition of the independence of those regions in the Donbas.

Officials in the West were concerned that the latest actions by Russia were a pretext to launch an all-out annexation of Kyiv.

The tactics by Putin have a drawn a swift rebuke from the international community. German Chancellor Olaf Scholz said Tuesday that the country was halting the Nord Stream 2 gas pipeline. The pipeline, which hasn’t begun operation yet, was built to pump natural gas from Russia to Germany, 

Meanwhile, the White House said that President Joe Biden will issue an executive order that “will prohibit new investment, trade, and financing by U.S. persons’’ in those areas; while officials from the European Union described Putin’s latest actions and statements as “a blatant violation of international law.”

Beyond military conflict, investors are watching for a clutch of data and an auction of short-term debt.

On the economic data front, a reading of home prices, the Case-Shiller Home Price is due out at 9 a.m., while IHS Markit is set to release a composite report on February purchasing managers index at 9:45 a.m. At 10 a.m., a report on consumer confidence is due.

Market participants were looking to a $52 billion auction of 2-year Treasury notes last Tuesday.

What strategists are saying

“Geo-political risks continue to be front and center today as Russia confronts Ukraine. Headline risk are driving a flight-to-quality, however, impending Fed rate hikes are on target should keep rates from falling too much,” wrote Tom di Galoma, managing director of Treasurys trading at Seaport Global Securities. 

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