Treasury yields were climbing on Wednesday as some humanitarian corridors were opened to allow citizens to flee, as Russia’s offensive in the Ukraine entered a second week, and some commodity prices saw a pull back.
What are yields doing?
-
The 10-year Treasury note
TMUBMUSD10Y,
1.898%
yields 1.904%, up from 1.870% at 3 p.m. Eastern Time on Tuesday. -
The 2-year Treasury note
TMUBMUSD02Y,
1.653%
rate was at 1.654%, up from 1.627% a day ago. -
The 30-year Treasury bond yield
TMUBMUSD30Y,
2.257%
was at 2.263%, rising from 2.241% on Tuesday. - The spread between the 2-year and 10-year notes, known as the yield curve, stands at around 25 basis points. The yield curve is viewed as an accurate recession indicator.
What’s driving the market?
Tensions in Ukraine remain high but markets continue to sell bonds, driving prices down and yields higher, ahead of a central bank update from the European Central Bank on Thursday and the Federal Reserve’s decision to lift benchmark interest rates in a week.
Policy makers will be convening as a surge in commodity prices, including oil and natural gas, resulting from the conflict in Ukraine is seen leading to even higher inflation in Europe and the U.S., raising the possibility of slower economic growth or even a recession.
On Tuesday, U.S. President Joe Biden announced a U.S. ban of imports of Russian oil in response to Moscow’s invasion of Ukraine.
West Texas Intermediate crude futures, the U.S. oil benchmark, had already topped $130 a barrel on Sunday as a result of the conflict. WTI futures have since fallen back, trading at $125.24 on Wednesday morning.
At the moment, the prospect of higher interest rates has weighed on government debt, with investors tending to sell assets in the hope of richer yields in the future.
In U.S. economic reports, investors will be watching the January Job Openings and Labor Turnover Survey, due at 10 a.m. ET.
What strategists are saying
“US rates edged higher overnight with 10-year yields reaching 1.909% as the Russian invasion of Ukraine continues,” wrote BMO Capital Markets strategist Ian Lyngen and Ben Jeffery. “In the wake of the position stop outs that have defined the recent trading conditions in Treasurys, the market is now in the process of price discovery from a balanced departure point. At its essence, the debate is whether to put more emphasis on the impact on Treasurys from higher inflation resulting from the runup in commodities or the eventual fallout for the global economy resulting from the war in Eastern Europe and the associated sanctions and supply disruptions,” the strategists wrote.
