Yields in the United States have risen amid volatile trade, with all eyes on Russia and the Federal Reserve.
In tumultuous trading on Monday, benchmark 10-year Treasury yields climbed as hawkish comments from a Federal Reserve member were matched with White House signals over the weekend that a Russian invasion of Ukraine might happen at any time.
Four consecutively high US inflation readings, from October to January, justified a faster pace of Federal Reserve rate hikes, according to St. Louis Fed president James Bullard, who reiterated his proposal for a full percentage point of rate hikes by July 1.
During his remarks, the 10-year note yield climbed somewhat, but the 2-year note yield surged much quicker, and the spread between the two fell to its lowest level since July 2020.
Ukraine’s ambassador to the United Kingdom walked back comments suggesting Kyiv may rethink joining NATO as Russia built up a massive military within striking distance of its neighbor, but indicated additional concessions could be made.
Russia’s anxieties would be greatly alleviated if Ukraine gave up its desire to join the Western military alliance, according to the Kremlin.
The escalating violence has also been a drag on financial markets, dragging on riskier assets such as stocks and driving oil prices to their highest level since 2014.
“We haven’t heard anything from the Fed that suggests they’re thinking about changing policy based on the outcome of the Russian and Ukrainian elections. If tensions rise and we face an invasion, I believe the Fed will take a step back “Cresset Wealth Advisors’ chief investment officer, Jack Ablin, agreed.
“At the very least, let us know what they’re thinking. Especially when the White House warns that an invasion is on the way.”
The 10-year Treasury note yield (US10YT=RR) increased 4 basis points to 1.991 % .
The 30-year Treasury bond yield (US30YT=RR) increased 3.7 basis points to 2.292 % .
The spread between rates on two- and 10-year Treasury notes (US2US10=RR), which is seen as a measure of economic expectations, was at 39.4 basis points, the lowest since July 2020.
The two-year Treasury yield (US2YT=RR), which moves in lockstep with interest rate forecasts, was up 7.9 basis points at 1.595 % .
After closing at 2.82 % on Friday, the breakeven rate on five-year US Treasury Inflation-Protected Securities (TIPS) (US5YTIP=RR) was last at 2.8 % .
The 10-year TIPS breakeven rate (US10YTIP=RR) was 2.467 % at the time of writing.
The US dollar 5 year forward inflation-linked swap (USIL5YF5Y=R) was last at 2.366 % , according to some, a better indication of inflation expectations due to probable distortions produced by the Fed’s quantitative easing.
Fed’s Barkin: “It’s about time” for the Fed to begin normalizing policy.
In the face of high inflation and a “fundamentally strong” economy and employment market, Richmond Federal Reserve President Thomas Barkin said it was “timely” for the central bank to begin adjusting its interest rate policy.
In an interview with SiriusXM Radio, Barkin did not comment directly on the pace of Fed rate hikes, but said the time is right for authorities to gradually restore policy to pre-pandemic levels.