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Most U.S. 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.
Meanwhile, the widely followed spread between 2- and 10-year yields dipped to as low as 17.6 basis points, one of the lowest levels since March 2020.
What are yields doing?
-
The yield on the 10-year Treasury note
TMUBMUSD10Y,
2.146%
fell to 2.14%, down from 2.192% at 3 p.m. Eastern on Thursday. Thursday’s level was the highest since May 30, 2019, based on 3 p.m. levels, according to Dow Jones Market Data. -
The 2-year Treasury yield
TMUBMUSD02Y,
1.948%
was 1.957%, up slightly from 1.939% on Thursday afternoon. -
The yield on the 30-year Treasury bond
TMUBMUSD30Y,
2.426%
dropped to 2.418% from 2.484% late Thursday.
Market drivers
Treasury yields from 3 to 30 years 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.
On Friday, the Kremlin 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. And U.S. President Joe Biden is speaking with Chinese President Xi Jinping to discuss Ukraine.
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
On Wednesday, the Fed delivered a widely expected quarter percentage point rate increase, penciling in 10 to 11 quarter-point hikes 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, the lone dissenter at Wednesday’s meeting, released a statement Friday morning explaining his dissent from the Fed’s 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, and that policy makers will “have to move quickly” or “risk losing credibility on its inflation target.”
U.S. data released Friday showed existing home sales decreased 7.2% between January and February — falling to a seasonally-adjusted, annual rate of 6.02 million. Meanwhile, the Conference Board’s index of leading economic indicators rose 0.3% in February and signaled a pickup in economic growth as the omicron variant faded and governments lifted restrictions.
Overseas, the Bank of Japan on Friday made no changes to its ultra-easy monetary policy stance, in contrast to a wave of monetary tightening by other major central banks, as inflationary forces in Japan remained subdued.
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.
