Yields drop on Ukraine concerns, weaker U.S. data

  • 17 February, 2022
  • 5:49 pm EET

Yields drop on Ukraine concerns, weaker U.S. data

Yields fell on Thursday, owing to fears of a Russian invasion of Ukraine and weaker-than-expected economic statistics from the United States.

Treasuries have been trapped in a tug of war, with rates rising on expectations of aggressive Fed tightening, while news of escalation between Russia and Ukraine dampens risk appetite and prompts periodic purchase of the safe haven paper.

The United States will reply to Russia’s expulsion of deputy ambassador Bartle Gorman, according to the RIA news agency, which cited the US embassy in Moscow.

There are “bad geopolitical news and a stock market that doesn’t necessarily appear all that healthy right now,” according to Tom di Galoma, managing director of Seaport Global Holdings in New York.

“The data was weaker across the board” on Thursday, he added.

The manufacturing index of the Philadelphia Fed declined in February as well.

Benchmark 10-year rates (US10YT=RR) are now at 1.996 % , down 5 basis points.

On Wednesday, yields touched a two-and-a-half-year high of 2.065 % before the Federal Reserve released minutes from its January meeting, which contained no new information on the bank’s plans to hike rates and shrink its balance sheet.

Fed officials agreed that it was time to raise interest rates because inflation was tightening and employment was high, but that any decisions would be based on a meeting-by-meeting review of inflation and other statistics.

The yield curve has flattened as investors price in a faster pace of tightening, but this trend also reflects concerns that the Fed would make a mistake and create a recession by raising rates too quickly.

After reaching 38 basis points on Monday, the yield curve between two-year and 10-year notes (US2US10=TWEB) steepened to 49 basis points, the steepest since July 2020.


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