By Ben Eisen, MarketWatch
NEW YORK (MarketWatch) -- Treasury prices sank Tuesday, sending
yields soaring, as investors shifted away from safe assets
alongside cooling tensions in Ukraine.
Russia recalled members of its military that had been
participating in war games near the Ukraine border on Tuesday,
which eased investor fears that Russia would step up its movement
into Ukraine following its entrance into the Crimean region.
Nonetheless, Russian President Vladimir Putin said he reserves the
right to use force in Ukraine.
On that news, Treasury prices slid alongside the U.S. dollar,
gold, and oil. Stocks surged back to record highs.
"Things are cooling off," said Chris Keith, senior vice
president and fixed-income manager at Adviser Investments. "The
Treasury market has given back all that it has gained yesterday and
then a lot more than that."
The 10-year Treasury note (10_YEAR) yield, which rises as prices
fall, jumped 9 basis points on the day to 2.699%, more than
reversing Monday's drop. The 30-year bond (30_YEAR) yield rose 9
basis points to 3.649%, and the 5-year note (5_YEAR) yield rose 7.5
basis points to 1.536%.
"Some of the comments that came from Putin's press conference
this morning suggested that tensions had eased," said Ian Lyngen,
senior rates strategist at CRT Capital Group. "While it's not
entirely clear the situation is resolved entirely, the market has
discounted any potential escalation."
But given the geopolitical uncertainty, Treasury buyers took
more neutral positioning, with investors "playing it from the
sidelines," Lyngen said. The J.P. Morgan weekly survey of Treasury
clients showed flat net positioning Tuesday.
The market also is looking ahead to the February jobs report,
due Friday. Economists polled by MarketWatch expect nonfarm
payrolls to have risen by 143,000. Reports for January and December
have come in substantially below expectations, cutting into
optimism about the pace of economic growth, and raising questions
about the extent to which frigid winter weather is cooling the
economy.
Nonetheless, Torsten Slok, chief international economist at
Deutsche Bank Securities, provided a reminder in a Tuesday note
that each report has a number of revisions.
"If you think this recovery has felt slow, then maybe the reason
is that nonfarm payrolls have been revised up with 40,000 on
average for every single month over the past four years," wrote
Slok, adding that monthly jobs growth has been closer to 200,000
than 160,000. "This upward bias in revisions is actually quite
important because many investors I talk to about the Fed outlook
think of 200,000 as a threshold for 'good' or 'not good
enough.'"
Pimco founder Bill Gross said in his latest letter to investors
Tuesday that so-called risk assets like credit and stocks are set
to outperform cash this year, given his assertion that markets will
believe the Federal Reserve's promise to keep its key policy rates
low for a substantial amount of time. Returns on risk assets depend
on the Fed's credibility, which he believes is currently intact,
but may crack down the road, he said. He also noted that liquidity
in the corporate bond market may be challenged as the Fed winds
down its bond-buying program.
In other bond news, Puerto Rico's governor signed a bill
authorizing a municipal bond sale of up to $3.5 billion in an
issuance that would help bolster the struggling island's liquidity
situation.
A number of corporate issuers were in the market, including
Pitney Bowes Inc. (PBI) and Coca-Cola Co. (KO), according to news
reports.
More from MarketWatch:
Mile wide, inch deep: Bond market liquidity dries up
Mutual funds far outperform mutual fund investors
Matthew Lynn: Russia is corrupt, but its markets are
bargains
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