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Bond Report: Treasury yields post weekly gains as Moscow says it’s open to talks but continues Ukraine siege, U.S. inflation gauge jumps

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Treasury yields were mostly advancing Friday morning as the Kremlin agreed to hold talks with Kyiv following Russia’s assault on Ukraine and as U.S. data showed the Federal Reserve’s preferred price gauge jumped in January.

What are yields doing?

The 10-year Treasury note
TMUBMUSD10Y,
1.970%

yields were at 1.976%, up from 1.969% at 3 p.m. Eastern Time Thursday.

The 2-year Treasury note rate
TMUBMUSD02Y,
1.567%

was at 1.6%, up from 1.544% a day ago.

The 30-year Treasury bond yield
TMUBMUSD30Y,
2.285%

was at 2.284%, up slightly from 2.291% on Thursday afternoon.

What’s driving the market?

Treasurys from 2 to 10 years out sold off on Friday amid mixed reports tied to the conflict in Eastern Europe. Russian forces were reportedly closing in on Kyiv and Ukrainian President Volodymyr Zelensky vowed not to surrender the country’s capital, while reports indicated that Moscow has agreed to hold talks with Kyiv.

The attack in Eastern Europe began early Thursday 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.”

The current bout of selling in bonds, which was nudging yields up, comes as the Federal Reserve’s preferred measure of inflation rose by 0.6% in January and showed the biggest yearly increase since 1982. The increase in the so-called personal consumption expenditure price index points to still-intense inflationary pressures in the U.S. economy.

Russian belligerence in Ukraine and the sanctions against Moscow, as the global community responds to the unprovoked attack, are raising the risks of an energy supply shock, which some observers say could send the annual U.S. inflation rate up to 10% at some point from 7.5% as of January.

Market-based projections point to a near-certain chance that the Federal Reserve will begin to hike benchmark interest rates, which stand at a range between 0% and 0.25%, next month.

What are analysts saying?

“Stocks’ remarkable reversal from their sharp drop on the open yesterday suggests traders think the war will be quick and the US will avoid getting caught up in it,” said FHN Financial Chief Economist Chris Low. “The papers are still talking about the drop in Treasury yields, but they are up, too,” Friday morning.

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