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Bond Report: Treasury yields drop after Russia mounts attack on Ukraine and Biden unveils fresh sanctions

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Treasury yields fell Thursday, led by rates one to three years out, as President Joe Biden unveiled new sanctions on Russia in response to its invasion of Ukraine.

What are yields doing?

The yield on the 10-year Treasury note
TMUBMUSD10Y,
1.972%

fell to 1.934%, compared with 1.976% at 3 p.m. Eastern on Wednesday.

The 2-year Treasury yield
TMUBMUSD02Y,
1.547%

dropped to 1.5% from 1.598% on Wednesday afternoon.

The yield on the 30-year Treasury bond
TMUBMUSD30Y,
2.296%

declined to 2.253% versus 2.274% late Wednesday.

What’s driving the market?

Investors piled into traditional havens, including government bonds and gold
GC00,
-1.02%
,
as global equities plunged in reaction to the invasion. U.S. stocks aside from the tech-heavy Nasdaq Composite Index
COMP,
+2.12%

remained lower, with the Dow Jones Industrial Average
DJIA,
-0.54%

down more than 400 points.

Oil futures soared, with the U.S. benchmark
CL.1,
+1.04%

briefly trading above the $100-a-barrel threshold.

The attack began early Thursday in Ukraine as Russian President Vladimir Putin said he had ordered military operations, brushing aside Western sanctions and warning other countries that any attempt to interfere would lead to “consequences you have never seen.”

In a news conference, U.S. President Joe Biden unveiled new sanctions on Russia, said Putin and his country “will bear the consequences” of their actions, and described U.S.-Russia relations as ruptured.

Surging prices for oil and other commodities as a result of the conflict were seen as stoking fears of stagflation — a combination of persistent inflation and slowing economic growth — potentially complicating the path for the Federal Reserve as it prepares to begin lifting interest rates as early as next month.

Read: Ukraine, climate change, and uncertainty in China—unrelated supply shocks hit all at once

In economic data, initial jobless claims fell by 17,000 to 232,000 in the week ended Feb. 19. That’s below the 235,000 estimate of economists polled by The Wall Street Journal. Meanwhile, new-home sales slumped in January, decreasing 4.5% to an annual rate of 801,000.

And the U.S. economy grew at slightly faster 7% annual pace in the fourth quarter, updated figures show, as Americans boosted spending and businesses rebuilt their stockpile of goods. However, the U.S. economy appears to have entered a more turbulent period after a speedy recovery from the pandemic.

What do analysts say?

“The Ukraine situation complicates the policy outlook for the Fed as energy and some grains prices would likely rise further if the attack deepens,” Nikko Asset Management Chief Global Strategist John Vail wrote in an email. “Meanwhile, domestic demand and corporate pricing power remain strong, so it is not easy for the Fed to support financial conditions by becoming a bit more dovish. However, the silver lining is that the decline in risk markets has helped prevent bond yields from rising to new yearly highs.”

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