TREASURE-Yields fall as wages stagnate, Ukraine fears rise


 (Adds quote, details, updates prices)
    By Karen Brettell
    NEW YORK, March 4 (Reuters) - U.S. 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 U.S. 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.
    Fed Chair Jerome Powell this week said the U.S. central bank
would begin "carefully" raising interest rates at its upcoming
March meeting but be ready to move more aggressively if
inflation does not cool as quickly as expected.

    Chicago Fed President Charles Evans said the central bank is
on track to raise rates this year, though it may be "more than I
think is essential" to do so at every policy-setting meeting.


      March 4 Friday 3:00PM New York / 2000 GMT
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.33         0.3349    -0.030
 Six-month bills               0.65         0.6612    -0.008
 Two-year note                 100-4/256    1.4919    -0.044
 Three-year note               99-174/256   1.6117    -0.073
 Five-year note                101-42/256   1.6307    -0.106
 Seven-year note               101-50/256   1.6927    -0.119
 10-year note                  101-96/256   1.7239    -0.120
 20-year bond                  102-112/256  2.223     -0.079
 30-year bond                  102-52/256   2.1498    -0.076
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        18.50         1.00    
 spread                                               
 U.S. 3-year dollar swap        12.00         0.50    
 spread                                               
 U.S. 5-year dollar swap         9.25         0.50    
 spread                                               
 U.S. 10-year dollar swap        8.50         0.00    
 spread                                               
 U.S. 30-year dollar swap      -27.75        -3.50    
 spread (Reporting by Karen Brettell; Additional reporting by Lisa
Pauline Mattackal; Editing by Nick Zieminski, Paul Simao and
David Gregorio)
  
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