What Goes Up (Can Come Down)

Rates pull back after U.S. warns of potential Russian invasion of Ukraine. Left to their own devices, Treasury yields and swap rates may well have pushed even higher in the wake of yesterday’s wild price action. That came to a screeching halt after National Security Advisor Jake Sullivan informed the press that there is a “credible prospect” that Russia may invade Ukraine in the coming weeks. The resulting flight to quality yanked rates lower, retracing some of yesterday’s sell-off.  The 10-year Treasury yield would end the day at 1.94%.

Oil rallies to $95. Oil surged to $95 a barrel today on Russia-Ukraine fears. Analysts believe that an invasion could send oil prices 10% higher. Higher energy prices will only add fuel to the fire of already hot inflation data. We could see a pullback in oil prices if the U.S. and Iran could come to a nuclear agreement in the near future.

Consumer sentiment falls to a 10-year low. University of Michigan’s consumer sentiment index fell to 61.7 in February, down from 67.2 in January. Inflation was the primary reason for the sour outlook with almost half of all respondents expecting their incomes to decline over the next year when adjusting for inflation. The one-year expected inflation increase to 5.0%, the highest reading since July 2008. Consumers may have to grapple with the idea of Americans entering another war in the coming weeks, which could continue to affect sentiment.