The Russian attack on Ukraine had a strong impact on bondsWhich recorded strong increases in prices and a decrease in its profitability. The German bond movement was particularly surprising, falling by 22 percent and offering a return of 0.175 percent, versus 0.22 percent on Wednesday. Despite this decline, the spread of debt with peripheral countries continues to widen: investors are desperately seeking refuge.
For its part, Spanish bond profitability recorded a decline as well. Specifically, just over 3 percent, even 1.2 percent. But it is worth taking a look at Spain’s risk premium, which measures the risk of a country defaulting on its debt obligations with investors, still above 100 points, the highest level since June 2020.
The reason is the significant drop in German bonds, where, as we said at the beginning, investors are looking for a haven from the geopolitical tensions that Putin highlighted with the attack on Ukraine. Italian bonds also recorded a decline of 3 per cent to 1.78 per cent.
And all this happens after Eurostat confirmed that inflation in the euro area is 5.1 percent, the highest level in the entire historical series.
US bonds do not reflect all the tension yet
The reason is that rising geopolitical risks are overshadowing concerns about sharp interest rate increases by the Federal Reserve.
If you take a look at US 10-year bond yields, they fell as much as 13 basis points to 1.86 percent after Russian forces attacked cities in Ukraine and President Vladimir Putin ordered an operation aimed, he said, at demilitarizing the country.
Bonds are recovering after falling earlier this month amid speculation that the Federal Reserve will raise aggressively to control inflation. The standoff in Ukraine is making things difficult for investors.
“Treasuries could go higher than here,” said Su-Lin Ong, head of Australian fixed income and economic strategy at the Royal Bank of Canada in Sydney. “There may be some reluctance to fade this rally as more announcements are likely from Russia, UK and European investors haven’t fully reacted yet, and the evidence is that returns are above 1.90 per cent for returns from the US to ten years.”
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