Treasury Yields Decline, Key Bond Spread Narrows With Jobs Data and Russia-Ukraine War in Focus

Source: NYSE

Treasury yields declined on Tuesday as traders monitored negotiations between Ukraine and Russia the relationship between short and long-term bonds.

The yield on the 5-year Treasury note retreated 7 basis points to 2.495% in afternoon trading, while the yield on the 30-year Treasury bond was down about 6 basis points to 2.518%. The yield on the benchmark 10-year Treasury note dropped about 8 basis points to 2.4%. Yields move inversely to prices and 1 basis point is equal to 0.01%.

The 5-year and 30-year rates inverted on Monday morning for the first time since 2006, with more purchases of the longer-dated Treasurys than the shorter-dated government bonds.

This inversion of the yield curve has in the past happened prior to recessions, as more purchases of long-dated Treasurys indicate investor concern about the health of the economy.

The main spread that traders watch, between 2-year and 10-year Treasurys became effectively flat on Tuesday, according to CNBC data. Other sources showed that curve briefly inverting.

However, the size of the Fed's balance sheet is one reason that the yield curve may prove to be a less effective predictive metric than in the past, according to some Wall Street pros.

 "We think it's just distorted because the Fed and other central banks have bought so many bonds they have depressed long term yields," said Michael Schumacher, director rates at Wells Fargo. "Ex the Fed, [the spread] would be plus 50 or plus 100. It's not a fair comparison."

Investors also monitored developments in Europe. A Russian defense officials said Tuesday the country would "drastically" decrease military action around Ukraine, which appeared to help market sentiment.

Tuesday started a key stretch for employment market data. On Tuesday, February's Job Openings and Labor Turnover Survey showed 11.3 million job openings, higher than the 11.1 million expected.

The March ADP Employment Change report is then set to be released on Wednesday, followed by weekly jobless claims data on Thursday. The closely watched March nonfarm payrolls report is then due out on Friday, with economists expecting to see 460,000 jobs added in March and the unemployment rate to fall to 3.7%, according to Dow Jones estimates.

Jobs data is a major input for central bankers as they determine the next steps for monetary policy. Federal Reserve Chairman Jerome Powell said last week that the U.S. central bank could become more aggressive with hiking interest rates in an effort to get inflation under control.

Elsewhere, house prices rose more than 19% year-over-year in January, according to Tuesday's S&P CoreLogic Case-Shiller Index.

The conference board's consumer confidence index came in just below expectations at 107.2. Economists were looking for 107.5, according to Dow Jones.

CNBC's Samantha Subin and Patti Domm contributed to this market report.

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