Ukraine Invasion Continues to Drive Volatility

Russia sanctions pull U.S. rates lower by double digits. Treasury and swap markets endured yet another volatile session, this time spurred on by a remarkable flight to quality after sanctions hit virtually every aspect of the Russian economy. The remarkable robustness of the sanctions (including cutting banks off from the Swift network) pulled equities broadly lower while Treasury yields and swap rates closed 13+ basis points lower across the curve. The MOVE Index, a measure of interest rate volatility, climbed higher to close above 100 for only the second time since early 2020. Whatever the magnitude of rate moves in the U.S., it pales in comparison to Russia where the central bank hiked rates to 20% in an attempt to insulate the Ruble from devaluation.

Atlanta Fed President Bostic says 50bp hike possible if inflation fails to decline. The Fed official added that currently he favors raising rates by 0.25% in roughly two weeks’ time, but that he would be looking at month-to-month change in inflation to calibrate the magnitude of the rate hike. Fed officials have been steadfast in their commitment to raise rates and fight inflation, despite the new risks posed by the Russian invasion of Ukraine.

Week ahead. Tomorrow we’ll get the latest look at Markit’s manufacturing PMI for the month of February, forecasts call for manufacturing activity to continue to grow. Wednesday will bring about the ADP’s latest private payroll figures (typically viewed as a leading indicator for Friday’s jobs report). On Thursday a host of services activity indices will be released along with factory and durable goods orders. Nonfarm payrolls will round out the week on Friday.