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Bond Report: Treasury yields slip despite U.S. job gains as Russia seizes nuclear power plant in Ukraine

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Yields for U.S. government debt were slipping Friday as the war in Ukraine worsened with Moscow seizing a nuclear power plant in the southern part of the Eastern European country.

The drop in yields continued even after the February U.S. employment report signaled the economy is picking up.

What are yields doing?
  • The 10-year Treasury note
    TMUBMUSD10Y,
    1.731%

    yields 1.749%, compared with 1.843% at 3 p.m. Eastern Time on Thursday.
  • The 2-year Treasury note rate
    TMUBMUSD02Y,
    1.467%

    stands at 1.476%, down versus 1.534% a day ago.
  • The 30-year Treasury bond
    TMUBMUSD30Y,
    2.140%

    yield was at 2.145%, compared with 2.225% on Friday afternoon.
  • For the week, the 10-year is down 23.5 basis points from 1.984% on Friday, the 2-year was down 10.8 basis points from 1.584%; the 30-year bond yield fell 14.9 basis points from 2.294% last Friday.
What’s driving the market?

Escalation of conflict in Eastern Europe is drawing bidders for safe-haven government debt, driving down yields.

As Russia lays siege to the country, it has damaged a Ukrainian nuclear-power plant, after shelling overnight which started a fire at the plant.

Meanwhile, data released Friday showed that the U.S. added 678,000 jobs in February and the unemployment rate fell to 3.8% from 4%, even as businesses grappled with the worst labor shortage in decades. Economists polled by the Wall Street Journal had predicted 440,000 new jobs would be added last month.

Hourly wages only rose 1 cent to $31.58 in February, but worker pay is climbing at the fastest rate since the early 1980s.

In congressional testimony this week, Federal Reserve Chairman Jerome Powell offered unusual specificity by revealing his intention to support a 25 basis-point increase to fed funds futures when policy makers convene in less than two weeks. The rate increase is expected to be the first in a series of hikes and the jobs report could factor into the pace of such moves, as the Fed also weighs the global impact of Russia-Ukraine clashes and the effect of sanctions against Moscow on commodity prices.

Those factors also have investors attuned to the spread between the 2-year Treasury yield and the 10-year, a widely regarded measure of the yield curve. The difference between the 2-year and 10-year note yields stands at less than 30 basis points, and some fear it could fall below zero at some point — an indicator of a possible recession.

What strategists are saying

“Treasuries rallied overnight as the invasion of Ukraine continues and reports of a fire at a nuclear power plant resulting from Russian shelling make the rounds. While the situation has reportedly been contained, the episode served as a reminder of the perils of Putin’s agenda,” wrote BMO Capital Markets strategists Ian Lyngen and Ben Jeffery, in a Friday research report.

In regards to the yield curve, the BMO strategists said “a drop below zero for the benchmark 2s/10s curve would undoubtedly be accompanied by concerns the event is signaling a nearing recession—a fact that would further complicate the Fed’s calculus and communications strategy.”

Economic Report: U.S. gains 678,000 jobs in February and unemployment drops to 3.8% despite labor shortage

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