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Treasury yields pulled back Friday as investors monitored developments in the Russia-Ukraine war and continued to digest the Federal Reserve’s decision earlier this week to deliver a widely expected interest rate increase and pencil in a series of hikes.
What are yields doing?
-
The yield on the 10-year Treasury note
TMUBMUSD10Y,
2.143%
fell to 2.137%, down from 2.192% at 3 p.m. Eastern on Thursday — its highest, based on 3 p.m. levels, since May 30, 2019, according to Dow Jones Market Data. -
The 2-year Treasury yield
TMUBMUSD02Y,
1.903%
was 1.895%, down from 1.939% on Thursday afternoon. -
The yield on the 30-year Treasury bond
TMUBMUSD30Y,
2.439%
dropped to 2.438% from 2.484% late Thursday.
Market drivers
Treasury yields edged lower as talks between Moscow and Kyiv stalled again and Russian forces pressed attacks on Ukraine cities. Optimistic signs around negotiations earlier this week had helped boost investor appetite for risky assets, contributing to weakness in safe-haven assets like Treasurys.
The Kremlin on Friday said Russian President Vladimir Putin told German Chancellor Olaf Scholz, in a phone call, that Ukraine was stalling talks with “unrealistic proposals,” news reports said. Meanwhile, world leaders are pushing for an investigation of Russia’s repeated attacks on civilian targets, including airstrikes on schools, hospitals and residential areas.
U.S. President Joe Biden is scheduled to speak with Chinese President Xi Jinping to discuss Ukraine on Friday.
Oil futures
CL.1,
BRN00,
which had pulled back sharply earlier this week on reports of progress in talks, have pushed back above the $100-a-barrel threshold.
Read: Why this red-hot hedge-fund manager says oil can reach $200 per barrel
The Fed on Wednesday delivered a widely expected quarter percentage point rate increase, penciling in 10 to 11 quarter-point rises by the end of 2023. Some investors questioned the Fed’s ability to deliver that degree of tightening without sharply slowing the economy or tipping it into recession.
St. Louis Fed President James Bullard released a statement Friday morning explaining his dissent from the Fed’s Wednesday decision, in which he called for a half-point rate increase. Bullard said the Fed should aim to lift its policy rate above 3% this year.
Bullard, who was the lone dissenter at Wednesday’s meeting, said U.S. monetary policy “has been unwittingly easing further because inflation has risen sharply while the policy rate has remained very low, pushing short-term real interest rates lower. The Committee will have to move quickly to address this situation or risk losing credibility on its inflation target.”
The Bank of Japan on Friday made no changes to its ultra-easy monetary policy stance, in contrast with a wave of monetary tightening by other major central banks as inflationary forces in Japan remained subdued.
Data on U.S. February existing home sales is due at 10 a.m. Eastern, along with the Conference Board’s February index of leading economic indicators.
What are analysts saying?
“The market has, to a degree, called the Fed’s bluff on rate hike plans as rate hike expectations were dialed back in the immediate wake of the dot plot release and economic projections, but the Fed is indeed tightening policy and regardless of the pace of the trend, yields are going higher in the months and quarters ahead,” said Tom Essaye, founder of Sevens Report Research, in a note.
