Treasuries Gain With Haven Currencies After Ukraine Hits Russia
(Bloomberg) -- US Treasuries rose alongside other haven assets as tensions escalated in Russia’s war against Ukraine.
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The advances on Tuesday lowered yields on US government debt by several basis points as Ukraine carried out its first strike within Russian territory with Western-supplied missiles and President Vladimir Putin approved an updated nuclear arms doctrine.
Japan’s yen climbed against the dollar, while the Swiss franc reached its strongest level against the euro since August.
“This is a pretty classic risk-off move that was preceded by stretched valuations” — with Treasuries “oversold,” said Tom Tzitzouris, head of fixed-income research at Strategas Securities. “Even if the geopolitical risk fades quickly, the rally in bonds has legs.”
While the gains were pared during US trading hours, the initial repricing shows the vulnerability of markets to escalating geopolitical conflict.
It also further unravels a recent selloff in the Treasury market, which has been broadly declining since mid-September on expectations that President-elect Donald Trump’s policies will boost growth and rekindle inflation. Over the past week, though, focus has turned to jostling over whom Trump will nominate for Treasury secretary.
A Bloomberg gauge of Treasury returns has pared its year-to-date gains sharply over the past two months. The US 10-year yield, which just days ago touched 4.50% for the first time since May, was trading at about 4.35% on Tuesday.
The rise in yields also reflects dwindling expectations for additional Federal Reserve interest-rate cuts. Amid resilient economic data, traders in the swaps market are pricing in just over a 50% chance of a quarter-point reduction next month — and less than 60 basis points worth of easing by the middle of 2025.
Fed “policy uncertainty is the main reason to expect volatility from risk-on factors, but war escalation doesn’t help,” Dennis DeBusschere, co-founder and chief market strategist at 22V Research, said in a report.
Ukraine deployed ATACMS missiles Tuesday to strike a military facility in the western Bryansk region, Russia’s Defense Ministry said, according to the Interfax news agency. It was the first known attack following the decision by US President Joe Biden’s administration to approve Kyiv’s limited use of the weapons to hit targets inside Russia. Putin also signed a decree allowing Russia to fire nuclear weapons in response to a conventional attack on its soil that threatens its sovereignty.