Yields for U.S. government debt rose on Wednesday, a day after rates for the 2-year and 10-year Treasurys climbed by the most in a week or more as investors monitor developments between Russia and Ukraine.
What are yields doing?
-
The 10-year Treasury note
TMUBMUSD10Y,
1.974%
yields 1.968%, up from 1.947% on Tuesday at 3 p.m. Eastern Time, when it marked its sharpest one-day rise since Feb. 15, according to Dow Jones Market Data. Yields rise as prices for debt fall. -
The 2-year Treasury note rate
TMUBMUSD10Y,
1.974%
stands at 1.603%, up from 1.557% a day ago, when it put in its steepest daily rate gain since Feb. 10. -
The 30-year Treasury bond
TMUBMUSD30Y,
2.265%
yields 2.258%, slightly higher from 2.253% on Tuesday afternoon.
What’s driving the market?
Investors are closely watching as Ukraine prepares for war against Russia, with Kyiv declaring a state of emergency, with a 190,000 Russian troops along Ukraine’s borders, in what the U.S. President Joe Biden has described as the beginning of an invasion by Moscow into the Eastern European country.
The geopolitical crisis has stoked concerns about war but investors appear to be attuned to the inflationary implications of sanctions by Western countries against Russia in response to its troop deployment into the pro-Russian Donbas region of Ukraine.
On Tuesday, Biden said the U.S. would sanction two Russian banks as well as the country’s sovereign debt. Energy prices, natural gas
NG00,
and crude oil
CL.1,
already had been ratcheting higher as the strife between one of the world’s largest producers of oil and Kyiv intensified.
Fixed-income investors see higher energy prices as another contributor to inflationary pressures, at least in the short run. Those pressures can chip away at the fixed value of Treasurys.
Fear that the Federal Reserve might see a need to aggressively dial up interest rate hikes in reaction to out-of-control inflation also is prompting selling of government debt, pushing yields higher.
Investors also are concerned about a so-called yield curve inversion, with the 2-year and 10-year Treasurys, at about 0.365 percentage points. An inversion of the yield curve, where rates of the shorter maturity yields more than the longer-dated debt has historically preceded a recession.
There’s no data on the horizon on Wednesday but investors will be watching for an auction of $53 billion in 5-year notes
TMUBMUSD05Y,
and a $22 billion sale in 2-year floating-rate debt.
What are strategists saying
“Markets pull back on increasing tensions in Eastern Europe, but refuse to surrender hopes for a diplomatic work around,” wrote Jim Vogel, executive vice president at FHN Financial, in a daily note. “ For interest rates, that translates to one step lower and two steps higher as sanctions increase incrementally.”
This post was originally published on Market Watch
