Tug of War Between Fed Tightening, Ukraine Conflict Continues

Rates extend declines as Russian invasion of Ukraine seems certain. Treasury yields and swap rates fell once again today, the 10-year Treasury yield closing 3 bps lower at 1.93% as haven assets were bid up on the prospect of a Russian invasion. Russian-backed separatists in the Donetsk region of Ukraine began to evacuate civilians to Russia, a sign many say points to an impending invasion. President Biden confirmed as much, saying that he is “convinced” Putin has made the decision to invade. Equities were once again pulled lower, equity indices closing in negative territory across every major market today.

Fed officials signal consensus on March rate hike. Several Fed officials signaled their support for a March rate hike today- Lael Brainard, John Williams and Charles Evans all indicating in public comments that a March rate hike will eb appropriate. Williams, the President of NY Fed, added that he doesn’t see a compelling reason for a “big step” at the beginning – casting further cold water on the probability of a 50bp rate hike in a month’s time. Fed Funds futures are currently pricing in four successive rate hikes through the Fed’s July meeting, and 6 before the end of 2022.