Bond Report: 20-year Treasury rate leads bond yields lower on renewed fears of a Russian invasion of Ukraine

What are yields doing?

• The yield on the 10-year Treasury note
  TMUBMUSD10Y,
  1.982%
  fell to 1.977%, down from 2.044% at 3 p.m. Eastern Wednesday.

• The 2-year Treasury note yield
  TMUBMUSD02Y,
  1.474%
  was at 1.487%, compared with 1.527% on Wednesday afternoon.

• The yield on the 30-year Treasury bond
  TMUBMUSD30Y,
  2.310%
  was 2.298%, down from 2.364% late Wednesday.

What’s driving the market?

Jitters over Ukraine triggered renewed buying interest in traditional safe-haven assets such as Treasurys, particularly the 20-year government bond, which was re-introduced in May 2020 for the first time since 1986.

Read: Here’s the technology being used to watch Russian troops as Ukraine invasion fears linger

U.S. Secretary of State Antony Blinken called on Russia to withdraw troops on Thursday, while pro-Russian separatists and Ukrainian authorities traded accusations of cease-fire violations along the line separating the two sides. Flare-ups along the line have been a frequent occurrence, but U.S. officials have recently said that Russia could be planning to fabricate a pretext for an invasion.

Fears of a Russian invasion had ebbed earlier this week when Russia said it was pulling some troops back from the border with Ukraine. But U.S. and NATO officials said there were no signs of a pullback, and a senior Biden administration official said late Wednesday that Russia had instead increased its forces by 7,000 troops.

Meanwhile, minutes of the Federal Reserve’s January policy meeting published Wednesday afternoon offered investors little new information.

The minutes showed officials felt it would soon be appropriate to start raising interest rates, as signaled by Fed Chairman Jerome Powell and the policy-setting Federal Open Market Committee’s statement at the conclusion of the January meeting. The minutes also revealed that a couple Fed officials backed ending the central bank’s bond-buying before the planned end in mid-March to send “an even stronger signal” of a commitment to bring down inflation.

Data released Thursday showed U.S. weekly jobless claims rose by 23,000 to 248,000 last week, breaking a string of weekly declines. Economists surveyed by The Wall Street Journal had been looking for first-time applications to fall to 218,000 in the week that ended Feb. 12.

U.S. home builders started construction on homes at a seasonally-adjusted annual rate of roughly 1.64 million in January, representing a roughly 4% decrease from the previous month. Permitting for new homes occurred at a seasonally-adjusted annual rate of 1.9 million, up nearly 1% compared with December. And the Philadelphia Fed’s manufacturing index fell to 16 from 23.2 in the prior month.

On Thursday, St. Louis Fed President James Bullard, who has called for 100 basis points worth of rate increases by July 1, said there’s been too much “mindshare” devoted to the idea that inflation will moderate at some point. Cleveland Fed President Loretta Mester is expected to speak at 5 p.m.

What are analysts saying?

“With no relevant macroeconomic data releases scheduled for today, the focus will remain on possible news relating to Russia-Ukraine tensions and speeches by central bank officials,” said analysts at UniCredit Bank, in a note.

“The publication of the FOMC minutes had no substantial impact on market expectations on the future rate hike, with investors currently pricing in roughly a 35 bp (basis point) fed-funds rate hike at the FOMC meeting scheduled for 16 March,” they said. “The decision of whether to raise the fed-funds rate by 25bp or 50bp in March will probably depend on the economic data relating to February, in particular nonfarm payrolls (on March 4) and CPI inflation (March 10). In the meantime, short-dated UST yields will likely remain very sensitive to any remarks by central bank officials.”