Treasury rates see biggest daily gain in at least a week as Russia orders troops to two Ukrainian regions

Two- and 10-year yields on U.S. government debt rose the most in a week or more on Tuesday as the market reacted to Russian President Vladimir Putin’s deployment of troops to Ukraine to support pro-Russian regions.

US markets were closed Monday for Presidents Day.

What do yields do?
  • The yield of the 10-year Treasury note TMUBMUSD10Y,
    advanced 1.7 basis points to 1.947% from 1.930% at 3 p.m. Eastern on Friday. Yields fall as debt prices rise. The rate move in the benchmark 10-year is the largest one-day gain since Feb. 15, based on 3 p.m. levels, according to Dow Jones Market Data.

  • The 2-year Treasury rate TMUBMUSD02Y,
    rose 8.9 basis points to 1.557% from 1.468% at the end of last week. This is the biggest one-day gain since Feb. 10.

  • The 30-year Treasury bond TMUBMUSD30Y,
    the yield was little changed at 2.253%, down from 2.249% on Friday.

What is driving the market?

Investors were nervous about the threat of geopolitical conflict looming in Eastern Europe. Tensions remained high after Putin on Monday ordered Russian troops into breakaway regions of Ukraine. Western officials feared Russia’s latest actions were a pretext to launch a full annexation of Kiev.

Putin’s tactics drew swift rebuke from the international community. German Chancellor Olaf Scholz said on Tuesday the country was shutting down the Nord Stream 2 gas pipeline. The pipeline, which has not yet been commissioned, was built to pump natural gas from Russia to Germany,

Meanwhile, President Joe Biden has said the United States is sanctioning two Russian banks as well as the country’s sovereign debt – calling the sanctions the “first tranche” of those measures. He also said the United States “will continue to escalate sanctions if Russia steps up.”

On the economic data front, the S&P CoreLogic Case-Shiller 20-city price index posted an 18.6% year-over-year gain in December, up slightly from 18.3% of the previous month. Meanwhile, a survey of US consumer confidence fell slightly in February to a five-month low of 110.5 from 111.1.

A $52 ​​billion auction of 2-year Treasury bills on Tuesday was awarded “near fair value,” said Jim Vogel of FHN Financial.

What the strategists say

“We expect low yields and Fed rate hikes to limit bond returns this year, although maintaining exposure to high-quality bonds remains important to diversify portfolio risk,” said Bill Merz, Minneapolis-based head of fixed income at US Bank Wealth Management. “Certain higher-yielding bonds can improve return potential, particularly bonds with unique risks such as non-government guaranteed mortgages and those with reduced sensitivity to Treasury yields such as bank loans.”

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