Ten- and 30-year Treasury rates posted their biggest weekly gains since Feb. 4 as most yields advanced Friday on improving investor sentiment about the Russia-Ukraine crisis.
The Kremlin said it was open to hold talks with Kyiv following Russia’s assault on Ukraine, while the U.S. planned to impose sanctions on Russian President Vladimir Putin. Meanwhile, data showed the Federal Reserve’s preferred price gauge jumping in January.
What are yields doing?
-
The 10-year Treasury note
TMUBMUSD10Y,
1.970%
yield was up 1.5 basis points at 1.984% from 1.969% at 3 p.m. Eastern Time Thursday. It rose 5.4 basis points this week. -
The 30-year Treasury bond yield
TMUBMUSD30Y,
2.281%
advanced less than 1 basis point to 2.294%, up slightly from 2.291% on Thursday afternoon. It rose 4.5 basis points this week. - It was the biggest weekly gain for the 10- and 30-year rates since the period that ended Feb. 4, based on 3 p.m. levels, according to Dow Jones Market Data.
- The 2-year Treasury note rateBX:TMUBMUSD02Y rose 4 basis points to 1.584% from 1.544% a day ago. It advanced 11.6 basis points this week, and is up 12 of the past 14 weeks.
What’s driving the market?
Treasurys sold off on Friday after news reports indicated Moscow was open to holding talks with Kyiv, but Russian forces continued to press forward toward Ukraine’s capital.
The attack in Eastern Europe began early Thursday, with the U.S. and other Western nations responding with sanctions against Russian banks, state-owned businesses and elite families.
The current bout of selling in bonds, which nudged yields up, comes as the Federal Reserve’s preferred measure of inflation rose by 0.6% in January and showed the biggest yearly increase since 1982. The increase in the so-called personal consumption expenditure price index points to still-intense inflationary pressures in the U.S. economy.
Meanwhile, the final reading of U.S. consumer sentiment in February rose slightly to 62.8, reflecting somewhat less pessimism about the future as omicron faded. And orders for durable goods rose a stronger-than-expected 1.6% last month.
Russian attacks 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 100% chance that the Federal Reserve will begin to hike benchmark interest rates, which stand at a range between 0% and 0.25%, next month.
What are analysts saying?
“While turmoil in markets calls for a cautious policy stance from the Fed, rising inflation risks suggest otherwise,” said Subadra Rajappa, head of U.S. rates strategy for Societe Generale. “There is little change in the market pricing of hikes, although flatter curves imply a slower growth trajectory. In the U.S., we recommend going long duration and long 10y TIPS breakevens to hedge further escalation of geopolitical risks,” she wrote in a note.
