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Treasury yields edged lower Thursday as Russia’s invasion of Ukraine enters a second week.
Federal Reserve Chairman Jerome Powell will appear before a Senate committee, a day after telling a House panel that he would be inclined to support a quarter-point rate increase when policy makers meet later this month, while acknowledging economic uncertainty created by the Russia-Ukraine situation.
What are yields doing?
-
The yield on the 10-year Treasury note
TMUBMUSD10Y,
1.860%
was at 1.859%, down from 1.862% at 3 p.m. Eastern on Wednesday. Yields and debt prices move opposite each other. -
The 2-year Treasury note yield
TMUBMUSD02Y,
1.488%
stood at 1.50%, down from 1.51% on Wednesday afternoon. -
The yield on the 30-year Treasury bond
TMUBMUSD30Y,
2.237%
was flat at 2.231%.
Market drivers
Yields bounced sharply on Wednesday, but have retreated significantly since Russia launched its invasion of Ukraine last week. The attack sparked demand for safe-haven assets, including Treasurys, and was seen complicating the outlook for central bank policy. While a surge in oil and other commodity prices as a result of the invasion is seen further stoking inflation already running at a 40-year high, it will also weigh on growth.
Powell on Wednesday offered some clarity, providing an unusually detailed preview of policy actions the Fed is likely to take at its March 15-16 meeting. He told the House Financial Services Committee that it would likely be appropriate to deliver a rate increase at that gathering and later, under questioning, saying he would be inclined to support a quarter-point move.
Read: Powell signals 25-basis point rate hike is coming in two weeks – and more tightening after that
Market expectations the Fed would kick off a rate-hike cycle with a half-point increase had risen in response to mounting inflation pressures but then dissipated in the wake of the Ukraine invasion.
The Fed is expected to continue to raise rates throughout the year. Powell said he wanted to proceed “carefully,” which Fed watchers took as a signal of further quarter-point moves, though Powell left the door open to bigger moves if conditions warrant.
Powell will testify before the Senate Banking Committee at 10 a.m. Eastern.
A weekly reading on jobless claims is due at 8:30 a.m., with economists surveyed by The Wall Street Journal looking for first-time applications for benefits to fall to 225,000 in the week ended Feb. 26, down from 232,000 the previous week.
A revised reading on fourth-quarter productivity and unit labor costs is also due at 8:30 a.m. Markit’s final reading of the services purchasing managers index for February is set for 9:45 a.m., while the Institute for Supply Management’s February services index is scheduled for 10 a.m. January factory orders data is also due at 10 a.m.
What are analysts saying?
Wednesday’s price action “underpins the dilemma investors face at present,” wrote analysts at UniCredit, in a note.
“Uncertainty related to the war in Ukraine increases downside risks to growth but at the same time, inflation is elevated and with risks to the upside. This is reflected in lower real yields (the 10-year real U.S. yield has declined over 40 [basis points] since mid February) and higher break-even (BE) inflation (10Y BE has risen by 20 bp since mid-February). In this context, Mr. Powell sent several hawkish remarks during his testimony yesterday, confirming that the U.S. central bank is still set to normalize rates. ”
