Treasury yields fall as Russia invades Ukraine

The U.S. Treasury building is seen in Washington, September 29, 2008. REUTERS/Jim Bourg/File Photo

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NEW YORK/LONDON, Feb 24 (Reuters) – Investors piled into U.S. government debt on Thursday, pushing Treasury yields lower after Russia invaded Ukraine in the biggest attack on a country against another in Europe since the Second World War.

Ukraine reported columns of troops crossing its borders from Russia and Belarus and landing on its shores from the Black and Azov Seas, as missiles rained down on Ukrainian cities. Read more

Global stock markets fell as the news pushed investors into safe havens such as US Treasuries and gold. The US dollar appreciated more than 1% and oil prices jumped more than 7%.

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The yield on 10-year Treasury bills fell 8.1 basis points to 1.896% after hitting 1.846% earlier. The benchmark rating was on track for its biggest daily decline since late November.

A closely watched part of the yield curve measuring the spread between two- and 10-year Treasury yields, seen as an indicator of economic expectations, was at 40.4 basis points.

History has shown over the past 50 years that geopolitical events rarely have a lasting, long-term impact on capital markets, said Stan Shipley, strategist at Evercore ISI.

“They’re moving certain sectors, whether it’s financials, banking, or energy prices,” Shipley said. “But the trends we were seeing will likely continue after a short break.”

The Federal Reserve has sometimes preferred in the past to delay major policy decisions until uncertainty about geopolitical risks subsides, Goldman Sachs said.

Now it’s different because inflation risk has created a more pressing reason to tighten, although uncertainty has reduced the chances of a 50 basis point interest rate hike in March, he said. -he declares. But Goldman sees rates rising steadily by 25 basis points in upcoming meetings.

Money markets have priced an 18.5% chance of a 50 basis point rate hike in March, half the chance of such a hike seen on Wednesday.

“There is clearly no risk appetite this morning and a lot of uncertainty,” said Chris Scicluna, head of economic research at Daiwa Capital Markets in London.

Across the US Treasuries curve, yields fell sharply on the day, with the two-year note falling 11.2 basis points to 1.488%.

It echoed moves in European sovereign debt markets, where German Bund yields were set to see their biggest daily decline since March 2020 – when the COVID-19 outbreak threw global markets into turmoil.

Justin Onuekwusi, portfolio manager at LGIM, said expectations for the number of rate hikes this year were down, despite the impact on inflation from rising energy prices, due to a perception that now might be the wrong time to start withdrawing liquidity from the markets.

“Central banks may have to deal with a spike in inflation, although this means that ultimately rate hikes could become significantly larger,” he said.

Oil prices surged, with Brent rising above $100 a barrel for the first time since 2014, as Russia’s attack on Ukraine heightened concerns about disruptions to global energy supplies.

As investors rushed to hedge against inflation risks, yields on inflation-linked bonds fell.

Yields on 10-year Treasury inflation-protected securities (TIPS) were last at 2.621%, indicating that the market expects inflation to average around 2.6% per year over the next decade.

US Treasury yields fall as Russia launches invasion of Ukraine

The five-year US Treasury Inflation-Protected Securities (TIPS) break-even rate was last at 3.144%.

The five-year U.S. dollar inflation-linked swap, seen by some as a better gauge of inflation expectations due to possible distortions caused by Fed quantitative easing, last stood at 2.368%.

The Treasury plans to auction $50 billion in seven-year notes at 1 p.m. EST.

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Reporting by Dhara Ranasinghe Additional reporting by Sujata Rao and Yoruk Bahceli Editing by Jane Merriman and Mark Potter

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