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Bond Report: Treasury rates see biggest daily gain in at least a week as Russia orders troops into two Ukraine regions

Yields for U.S. government debt were higher Tuesday, well off overnight lows, as the market reacts to Russian President Vladimir Putin’s deployment of troops into Ukraine in support of pro-Russian regions of the Eastern European country, stoking fears of an invasion.   

U.S. markets were closed on Monday in observance of Presidents Day.

What are yields doing?

The 10-year Treasury note
TMUBMUSD10Y,
1.925%

yields 1.944% but had touched a low of around 1.85% overnight, compared with 1.930% at 3 p.m. Eastern Time on Friday. Yields fall as prices for debt rise.

The 2-year Treasury rate
TMUBMUSD02Y,
1.532%

was at 1.545%, but had hit an intrasession nadir at around 1.43%, versus 1.468% at the end of last week.

The 30-year Treasury bond
TMUBMUSD30Y,
2.227%

yields 2.244%, compared with 2.249% on Friday and an overnight low at 2.18%.

What’s driving the market?

Investors are on edge with the threat of geopolitical conflict looming in Eastern Europe. A flight to safety in Treasurys was seen as market participants weighed the implications of a possible full-blown invasion of Ukraine by Russian forces.

Tensions remained elevated after Putin ordered Russian troops into Donetsk and Luhansk, pro-Russian regions in Ukraine, on Monday. Officials in the West were concerned that the latest actions by Russia were a pretext to launch an all-out annexation of Kyiv.

The tactics by Putin have a drawn a swift rebuke from the international community. German Chancellor Olaf Scholz said Tuesday that the country was halting the Nord Stream 2 gas pipeline. The pipeline, which hasn’t begun operation yet, was built to pump natural gas from Russia to Germany, 

Meanwhile, President Joe Biden will give an “update on Russia and Ukraine” from the White House at 1 p.m. Eastern on Tuesday, the White House announced. 

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

Market participants were looking toward a $52 billion auction of 2-year Treasury notes later on Tuesday.

What strategists are saying

“Geo-political risks continue to be front and center today as Russia confronts Ukraine. Headline risk are driving a flight-to-quality, however, impending Fed rate hikes are on target should keep rates from falling too much,” wrote Tom di Galoma, managing director of Treasurys trading at Seaport Global Securities. 

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