US Treasury bond yields declined moderately amid increased geopolitical risks after the Russian president signed decrees recognizing the independence of the Donetsk and Lugansk People's Republics (DPR and LPR). In addition, the President instructed the armed forces of the Russian Federation to perform the functions of maintaining peace in the self-proclaimed republics.
The yield on 10-year Treasury bonds fell by 2.2 basis points, reaching 1.908%, while the yield on 30-year bonds was 2.223% (-2.6 basis points). Meanwhile, the yield on 2-year Treasury bonds, reflecting expectations of short-term interest rates, rose by 0.3 basis points to 1.475%.
Experts note that the demand for treasury bonds, which are considered a safe haven asset, is increasing against the backdrop of the ongoing Russian-Ukrainian crisis. Last week, the yield on 10-year Treasury bonds exceeded 2%, while market participants were preparing for a Fed rate hike (now the probability of a 0.25% rate increase at the March meeting is 75%, while the chances of a 50% rate hike are 25%).
Experts note that the escalation of geopolitical tensions is putting even more pressure on central banks this year, adding to the confusion. “At the margin, higher energy prices are going to push that peak in inflation further out, but ultimately I think the central banks are working with a relatively blunt tool kit here, ” Hugh Gimber, global market strategist at JP Morgan Asset Management, said.
As for the US data, today at 14:00 GMT S&P/Case-Shiller Home Price Indices for December will be released (according to forecasts, the index growth slowed to 18% per annum from 18.3% per annum in November). Meanwhile, at 14:45 GMT Manufacturing PMI and Services PMI for February will be published (economists expect an increase to 56.0 from 55.5 and to 53.0 from 51.2, respectively). In addition, at 15:00 GMT the consumer confidence index will be released (according to forecasts, the index fell to 110 from 113.8 in January).