Bond Report: 2- and 10-year Treasury yields post biggest weekly declines in almost two years as Russia seizes nuclear power plant

Yields for U.S. government debt fell across the board on Friday, giving the 2- and 10-year maturities their biggest weekly yield declines since March 2020, as Russia’s war in Ukraine worsened.

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

What are yields doing?

The 10-year Treasury note

yield fell 12.1 basis points to 1.722% from 1.843% at 3 p.m. Eastern Time on Thursday. It dropped 26.2 basis points this week, the biggest one-week decline since the period that ended on March 6, 2020.

The 2-year Treasury note rate

dropped 4.4 basis points to 1.490% from 1.534% a day ago. For the week, it declined 9.4 basis points, the biggest weekly decline since March 27, 2020, based on 3 p.m. levels, according to Dow Jones Market Data.

The 30-year Treasury bond

yield was down 7.7 basis points at 2.148%, compared with 2.225% on Friday afternoon. It fell 14.6 basis points this week, the biggest weekly drop since Dec. 3, 2021.

What’s driving the market?

Escalation of conflict in Eastern Europe drew bidders for safe-haven government debt, driving down yields across the curve.

Russians took control of a nuclear-power plant in Ukraine, Europe’s largest, after shelling overnight sparked a fire.

Meanwhile, data released Friday showed 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 earlier this week, Federal Reserve Chairman Jerome Powell revealed his intention to support a 25 basis-point increase to the fed funds rate 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 widely followed spread between 2-year and 10-year Treasury yields. The difference between those rates fell to 24 basis points on Friday, and some fear it could fall below zero at some point — an indicator of a possible recession.

What strategists are saying

“Treasury trades are slowing this afternoon, leaving intact the overnight rally that started with the attack on a nuclear power plant, which then morphed into a broader risk-off move that swept Europe,” said FHN Financial Executive Vice President Jim Vogel. “Rather than getting better, financial conditions are still tightening, back to the levels of last March when traders worried about a Covid-19 spike in Europe. The Fed can no longer read the markets,” he wrote in a note Friday.

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