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Treasury yields jumped early Monday, with the rate on the 10-year note touching its highest since July 2019, as investors assessed developments in the Russia-Ukraine war and awaited this week’s pivotal meeting of Federal Reserve policy makers.
What are yields doing?
-
The yield on the 10-year Treasury note
TMUBMUSD10Y,
2.068%
was at 2.086%, up from 2.004% at 3 p.m. Eastern on Friday. The yield hit an intraday high at 2.105% in early activity, its highest since July 2019, according to FactSet. Yields and debt prices move opposite each other. -
The 2-year Treasury yield
TMUBMUSD02Y,
1.817%
was 1.818%, up from 1.748% Friday afternoon. -
The yield on the 30-year Treasury bond
TMUBMUSD30Y,
2.418%
rose to 2.441% compared with 2.363% late Friday. - The 10-year yield rose 28.2 basis points last week, its largest such rise since the week ended Sept. 13, 2019 based on 3 p.m. levels, according to Dow Jones Market Data. The 2-year rate jumped 25.8 basis points last week, also the largest weekly rise since Sept. 13, 2019.
What’s driving the market?
Treasury yields, which had fallen sharply in the wake of Russia’s Feb. 24 invasion of Ukraine as investors piled into government debt and other traditional havens, have taken back all ground lost and then some. Investor risk appetite appeared strong early Monday, as stock-index futures pointed to solid gains for U.S. equities.
Analysts said optimism over a fourth round of talks that were under way between Russian and Ukraine officials appeared to boost risk appetite despite a brutal weekend that saw Russian forces intensify their attacks on Ukrainian cities. A Russian airstrike on a Ukrainian military training center near Ukraine’s border with Poland, a NATO member, came after Moscow warned the West that it would consider arms deliveries to Ukraine as legitimate targets.
China, meanwhile, locked down the key southeastern manufacturing hub of Shenzhen as it also combats a COVID outbreak in the northeast of the country.
The Federal Reserve is expected to deliver a quarter-point increase to the fed-funds rate when it concludes a two-day policy meeting on Wednesday. Investors will be focused on clues to the pace and scope of future rate increases as well as plans to shrink the Fed’s balance sheet.
The Fed was already set to deal with persistently high inflation. The Russian invasion complicates the picture, further stoking inflation as oil and other commodity prices soar, but also threatening economic growth as consumers get squeezed.
What are analysts saying?
“Unfortunately, this external shock is out of the control of monetary policy which can do little to drag prices lower. Even before the conflict, inflation was sitting at multidecade highs, and the war has only added fuel to the fire,” said Hussein Sayed, chief market strategist at Exinity, in a note.
“Tightening policy too quickly will not only upset financial markets but would also increase the risk of pulling the economy into a recession. On the other hand, keeping policy loose will send inflation into double-digits, which holds even larger negative consequences,” Sayed wrote. “Of course, the Fed doesn’t want to reverse all the recovery seen since the pandemic, especially when it comes to employment. So, finding a balanced approach will not be easy.”
