This post was originally published on this site
Yields on short-dated Treasurys headed higher Friday ahead of what is expected to be the first increase of benchmark interest rates since 2017 when the Federal Reserve at its policy meeting next week.
Investors also continued to watch fast-moving developments in Ukraine, with Russian President Vladimir Putin implying there were signs of progress in talks with Kyiv, even as Russia widens the war with bombing in western Ukraine.
What are yields doing?
-
The 10-year Treasury note yield
TMUBMUSD10Y,
2.010%
was at 2.005%, little changed from 2.008% on Thursday at 3 p.m. Eastern Time. -
The 2-year Treasury note rate
TMUBMUSD02Y,
1.764%
stands at 1.744%, up versus 1.717% a day ago. -
The 30-year Treasury bond yield
TMUBMUSD30Y,
2.372%
is at 2.375%, compared with 2.392%. - The spread between the 2-year and 10-year notes, a measure of the yield curve, narrowed by nearly 4 basis points to 25.4 basis points. The spread has narrowed significantly this year, flattening the curve. An inversion of the curve, which hasn’t happened yet, is viewed as a reliable recession warning signal.
What’s driving the market?
Yields have climbed steadily this week, despite the persistence of the conflict in Europe, suggesting that worries about inflation and coming central bank interest-rate increases hold a greater sway with markets than the likely impact of the Ukraine war.
The Federal Reserve’s two-day policy meeting starting next Tuesday is expected to result in a hike of Fed funds rates by 25 basis points, from the current range between 0% and 0.25%.
The University of Michigan’s consumer sentiment index fell, in an initial March reading, to 59.7 from February’s level of 62.8. Economists were expecting a reading of 62.0, according to a Wall Street Journal survey. On Thursday, consumer price data showed U.S. February consumer prices rose to 7.9%, a 40-year high, and some see that worsening due to the Russia-Ukraine war.
However, consumer expectations for inflation over the next year rose to 5.4% from February’s expectation of 4.9%, the highest level since 1981, while inflation expectations over five years held steady at 3%.
In geopolitics, Russian President Vladimir Putin told his Belarusian counterpart Alexander Lukashenko that he had seen “certain positive shifts, according to Russian news agency Interfax, and that sparked a more a positive tone in equity markets, which is weighing on so-called havens such as Treasurys and gold bullion.
Putin’s remarks come as the invasion of Ukraine by the Kremlin enters a third week, with troops tightening its circle around the capital city.
President Joe Biden announced Friday that the U.S. would end normal trade relations for Russia over its invasion.
What strategists are saying
“Slower fixed income trading points to both the war’s transition to a more difficult phase and the puzzle of inflation and central bank policy to combat it,” wrote Jim Vogel, executive vice president at FHN Financial, in a note. “Market commentary discusses stagflation as though it is an economic cycle, but it is a label that was attached to a brief period in the U.S. that was a precursor to recession,” he wrote.
