Treasury Yields Decline, But Many Investors Tracking Bond Spreads


U.S. Treasury yields fell on Wednesday morning; however, investors are still watching how spreads differ between bonds after the 30-year and 5-year rates switched at the beginning of the week.

The yield of the 30-year Treasury bond dropped nearly three basis points to 2.4912%, while the yield of the 5-year Treasury moved around three basis points down to 2.4499% at 4:15 a.m. ET. Ten-year yields on benchmark Treasury notes decreased by two basis points, and they slipped around 2.3707%. The yields fluctuate in inverse proportion to the price and are based on a basis point. One basis point equals 0.01 %.

Since 2006, on Monday, for the first time, the yield on the 5-year Treasury increased above the 30-year United States government bond, and it remained inverted in the early hours of the trading session.

Inversions of the yield curve have typically happened before the recessions, while traders deem the spread between the 10-year and 2-year yields more significant. As per analyst information, the spread was in a flat state on a Tuesday; however, other sources show the curve briefly changing direction.

On Wednesday, Antoine Bouvet, senior rates strategist at ING, told the television business news show “Squawk Box Europe” that he did not believe the yield curve movements suggested that “recession is inevitable, thankfully.”

“However, there is a risk, and that risk is growing when you consider the Fed’s (Federal Reverse Board) commitment to almost rate hikes to the restrictive territory at a time when some sectors of the economy are showing indications of slowdown, and that is something that needs to be on investors thoughts,” he stated.

Signs of progress in the Russia-Ukraine war might have aided Tuesday’s 2s/10s inversion, as the Fed would probably be freed up to execute a more challenging round of interest rate hikes to battle inflation if geopolitical threats receded. Chairman Jerome Powell of the Federal Reserve left the door open to rate hikes of more than 25 basis points, or a quarter percentage point, on March 21.

The conflict between Russia and Ukraine has already driven high inflation, which many investors are worried could strain economic growth.

On Tuesday, optimism was raised following talks between Ukrainian and Russian officials in Turkey. Russia’s deputy defense minister stated Moscow had resolved to “dramatically” reduce its military presence near Kyiv.

Although Russia has begun to transfer some of its forces away from Kyiv to other parts of Ukraine, John F. Kirby, Pentagon Press Secretary, emphasized that these moves do not constitute a retreat.

Meanwhile, all three major United States stock market indices rose, and optimism for Russia-Ukraine cease-fire talks was credited with boosting the stock market mood. Russia claimed in negotiations that it would reduce operations near Kyiv to “build trust.”

Furthermore, investors monitor the economic data updates and track developments in this current geopolitical crisis.

According to Ben Jeffery of BMO Capital Markets, the Treasury’s $47 billion auctions of 7-year Treasury notes yielded “strong bidding data.”