The Sudden Rise of Stock & Treasury Yields

News of potential peace talks between Russia and Ukraine, Chinese stimulus, and an upcoming U.S. interest rate hike has boosted stocks and U.S. Treasury yields recently. Russia and Ukraine have both shown an interest in compromise lately as peace talks were set to resume three weeks into a Russian assault that has failed to achieve any meaningful objectives for the Russian government, and China’s Vice Premier Liu He has stated that Beijing will develop and implement more measures to provide a boost in the Chinese economy, as well as favorable policy steps for capital markets. MSCI’s broadest index of Asia-Pacific shares outside Japan rallied 4.2% after Liu’s comments, which in turn rose Hong Kong shares up 9%.

“There is some positive noise about the Ukraine conflict potentially moving towards compromise and then with Chinese indications that they will step in wherever necessary, Asian equities have really flown through the roof,” Seema Shah, the chief strategist at Principal Global Investors, stated the press recently.

Many countries throughout the world have hit Russia with harsh sanctions for the invasion of Ukraine, which Moscow is now referring to as a “special operation”.

“These sanctions probably are working, hopefully that will put some pressure on both sides to get around the table and negotiate,” said Gregory Perdon, co-chief investment officer at Arbuthnot Latham. He also warned that the invasion could potentially halt the speed of the Feds rate hikes throughout the year.

The market has already priced in Wednesday’s 25 basis point rate hike and expects two more hikes by the end of spring. U.S. retail sales rose 0.3% in February, according to recent data, as gasoline, food, and many household good have become more expensive and have forced the hands of many households to cut back on spending on other goods, which many expect to dampen economic growth this quarter. Many traders are also bound to be closely observing the Fed for information on how it intends to halt its bond-buying program.

S&P futures rallied by more than 1%, indicating a strong open on Wall Street, and the MSCI world equity index also rose 1.1%, moving away from one-year lows hit in the previous session, while European stocks gained 2.65%. Chinese stocks were up 4.3%, and U.S. 10-year Treasury yields rose to 2.204% on the Fed rate hike expectations, their highest since June 2019. The five-year yield rose to 2.149%, its highest since May 2019, and Germany’s 10-year government bond yield also rose to its highest since Nov. 2018 at 0.403%.

In addition, Russia currently has $117.2 million in interest payments due on two dollar-denominated Eurobonds soon. Its finance ministry has assured it will use roubles to make the payments if sanctions prevent it from paying in dollars — a move markets would view as a default. The ball is in the United States’ court as to whether the payments will go through, and Washington should clarify whether the settlements are possible, Russian Finance Minister Anton Siluanov said.

Source: Brookfield Brief