Yields fall as wages stall, Ukraine fears rise

NEW YORK: US Treasury yields fell on Friday after data showed that wage growth stalled in February, while the yield curve reached its flattest level in two years as concerns about the war in Ukraine led investors to seek out longer-dated low-risk debt.

Employers in the United States added 678,000 jobs in February, more than economists’ expectations of a gain of 400,000. Average hourly earnings were unchanged, however, compared with an expected 0.5% gain.

“You had very strong hiring and job gains but quite a bit weaker average hourly earnings, so, if anything, I think that’s probably a little bit of a relief for the Fed,” said Zachary Griffiths, a macro strategist at Wells Fargo in Charlotte, North Carolina.

Concerns about the Russian invasion of Ukraine and investor risk aversion before the weekend added to the appeal of safe haven bonds.

Russian forces in Ukraine seized Europe’s biggest nuclear power plant on Friday in an assault that caused alarm around the world. Officials said later that the facility was now safe.

Two-year yields fell four basis points on the day to 1.492%. Benchmark 10-year yields fell 12 basis points to 1.724%.

The yield curve between two-year and 10-year notes flattened to 23 basis points, the smallest gap since March 2020.

The yield curve reflects concerns that growth will stall even as inflation remains high. Sanctions on Russia have sent the prices of oil, grains and other commodities soaring, adding to the price pressures.

“The flattening of the curve and volatility across a number of different markets does indicate a number of growth concerns with a higher probability of stagflation or recession,” said Marvin Loh, Senior Global Macro Strategist for State Street.

Consumer price inflation data for February released on Thursday is the next major US data point.

Two-year yields, which are highly sensitive to interest rate policy, have risen in recent months as investors prepare for the Federal Reserve to hike rates, with the first increase in borrowing costs expected at its March 15-16 meeting.

At the same time safe haven buying has been focused in longer-dated debt, flattening the curve.

“With the Fed seemingly on a preset course for at least these first couple of hikes, you have the front end more likely to remain supported by Fed policy expectations, while the back end catches the majority of the risk-off bid,” Griffiths said.