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Bond Report: Treasury yields slip amid renewed fears of a Russian invasion of Ukraine

Yields on Treasurys slipped Thursday as investors monitored developments around Ukraine and continued to weigh the outlook for Federal Reserve interest rate increases that are expected to begin next month.

What are yields doing?

The yield on the 10-year Treasury note
TMUBMUSD10Y,
2.009%

fell to 2.0008%, down from 2.044% at 3 p.m. Eastern Wednesday.

The 2-year Treasury note yield
TMUBMUSD02Y,
1.511%

was at 1.491%, compared with 1.527% on Wednesday afternoon.

The yield on the 30-year Treasury bond
TMUBMUSD30Y,
2.319%

was 2.323%, down from 2.364% late Wednesday.

What’s driving the market?

Jitters over Ukraine appeared to trigger some renewed buying interest in traditional safe-haven assets such as Treasurys, analysts said.

Read: Here’s the technology being used to watch Russian troops as Ukraine invasion fears linger

Fears of a Russian invasion had ebbed earlier this week when Russia said it was pulling some troops back from the border with Ukraine. But U.S. and NATO officials said there were no signs of a pullback, and a senior Biden administration official late Wednesday said Russia had instead increased its forces near Ukraine by 7,000 troops.

Pro-Russian separatists and Ukrainian authorities traded accusations of cease-fire violations along the line separating the two sides in eastern Ukraine on Thursday. Flare-ups along the line have been a frequent occurrence, but concerns run high amid the Russian troop buildup. U.S. officials have charged that Russia could use false claims of Ukrainian attacks on pro-Russian separatists as a pretext for invasion.

Meanwhile, minutes of the Federal Reserve’s January policy meeting published Wednesday afternoon offered investors little new information.

The minutes showed officials felt it would soon be appropriate to start raising interest rates, as signaled by Fed Chairman Jerome Powell and the policy-setting Federal Open Market Committee’s statement at the conclusion of the January meeting. The minutes also showed a couple Fed officials backed ending the central bank’s bond-buying before the planned end in mid-March to send “an even stronger signal” of a commitment to bring down inflation.

U.S. economic data on tap Thursday include weekly figures on jobless claims at 8:30 a.m. Eastern, with economists surveyed by The Wall Street Journal looking for first-time applications to fall to 218,000 in the week ended Feb. 12 from 223,000 the previous week.

January data on building permits and housing starts is also due at 8:30 a.m., along with the Philadelphia Fed’s February manufacturing index.

St. Louis Fed President James Bullard, who has called for 100 basis points worth of rate increases by July 1, is due to speak at 11 a.m., while Cleveland Fed President Loretta Mester is expected to speak at 5 p.m.

What are analysts saying?

“With no relevant macroeconomic data releases scheduled for today, the focus will remain on possible news relating to Russia-Ukraine tensions and speeches by central bank officials,” said analysts at UniCredit Bank, in a note.

“The publication of the FOMC minutes had no substantial impact on market expectations on the future rate hike, with investors currently pricing in roughly a 35 bp (basis point) fed-funds rate hike at the FOMC meeting scheduled for 16 March,” they said. “The decision of whether to raise the fed-funds rate by 25bp or 50bp in March will probably depend on the economic data relating to February, in particular nonfarm payrolls (on March 4) and CPI inflation (March 10). In the meantime, short-dated UST yields will likely remain very sensitive to any remarks by central bank officials.”

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