Bond Report: 2-year Treasury rate has biggest two-day rise in over a decade as investors assess Powell and Russia-Ukraine

Treasury yields mostly stabilized Thursday, following a sharp selloff in the prior session, as investors assessed Federal Reserve Chairman Jerome Powell’s testimony to the Senate Banking Committee.

The 2-year rate had its biggest two-day advance since 2009 on Thursday. Meanwhile, Powell told lawmakers that the war in Ukraine is likely to boost inflation in the short run, even though it is unclear how long that pressure will last.

What are yields doing?

The 2-year Treasury note yield BX:TMUBMUSD02Y rose 2.4 basis points to 1.534% from 1.51% on Wednesday afternoon. The rate is up 23.1 basis points over the last two trading days, the largest two-day gain since June 8, 2009, based on 3 p.m. levels, according to Dow Jones Market Data.

The yield on the 10-year Treasury note

declined 1.9 basis points to 1.843% from 1.862% at 3 p.m. Eastern on Wednesday. Yields and debt prices move opposite each other.

The yield on the 30-year Treasury bond

declined less than 1 basis point to 2.225% from 2.231% in the prior session.

The 10- and 30-year rates are both down three of the past four trading days.

Market drivers

Russia’s invasion of Ukraine, which started last week, has been complicating the outlook for central bank policy. While a surge in oil and other commodity prices as a result of the invasion could further stoke inflation already running at a 40-year high, it also may weigh on growth.

On Thursday, Powell reiterated his support for a 25 basis point rate increase at the central bank’s next policy meeting on March 15-16. If inflation doesn’t peak and start to come down, he said the Fed is prepared to raise rates “by more than” a quarter-percentage point, at one or more meetings.

Read: Powell says Ukraine war is adding to upward pressure on inflation

Data released Thursday shows initial jobless claims fell by 18,000 to a two-month low of 215,000 in the past week of February, as businesses hired more people. Economists surveyed by The Wall Street Journal expected claims to fall to 225,000 for the week ended Feb. 26.

The cost of labor rose sharply in the fourth quarter, while overall fourth-quarter productivity rose 6.6%. Factory orders also climbed in January. An ISM barometer of business conditions at service-style companies, such as retailers and restaurants, fell 3.4 points in February to a one-year low of 56.5%. The index has fallen three straight months, though numbers over 55% are viewed as exceptional for the economy.

What are analysts saying?

“The Russian invasion of Ukraine has upended forecasts and clouded the outlook, making most backward-looking data particularly stale,” said JPMorgan Chase & Co.’s Joseph Lupton and Olya Borichevska. “Nevertheless, the underlying health of the global economy ahead of the latest shock is important for gauging both the resilience through the shock and the potential rebound as the shock abates.”

“Together, strengthening growth and firming inflation underscore the need for central banks to begin removing their emergency policy settings that have been in place since the pandemic. This is a powerful signal that needs to be weighed against the new Russian shock.”

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