Treasury stocks and yields are down sharply on Wall Street on Friday, as growing worries about an impending Russian invasion of Ukraine add to already elevated market worries about inflation and interest rates.
The S&P 500 was down 1.6% in afternoon trading after the White House encouraged all US citizens to leave Ukraine in the next 24-48 hours ahead of a possible invasion by the Russia.
The shares suddenly fell around 1:30 p.m. Eastern Time, with losses nearly tripling in about half an hour.
At the same time, Treasury yields fell as investors shifted money into bonds in search of safe havens. The 10-year Treasury yield fell to 1.97% from around 2.03% earlier in the afternoon.
Crude oil prices also rose suddenly on fears that the violence could eventually lead to supply disruptions. Brent crude, the international standard, rose 3.4% to $94.55 a barrel, while U.S. crude rose 3.5% to $93.07 a barrel.
For stocks, this is just the latest decline in what has been a tumultuous run. They have fallen since peaking at the start of this year amid fears the Federal Reserve will need to become more aggressive in raising interest rates to contain inflation.
But it’s a sharp turnaround for bonds, which have been steadily rising on expectations that the Fed will raise rates more often and more sharply this year than expected. Just a day earlier, the 10-year Treasury yield topped 2% for the first time since 2019.
In other stock trading, the Dow Jones Industrial Average fell 294 points, or 0.8%, to 34,947 as of 2:18 p.m. Eastern. The Nasdaq fell 2%.
Inflation has been steadily rising over the past year as the economy recovers from the virus pandemic and demand for goods far exceeds supply. The Labor Department said consumer-level prices rose 7.5% last month from a year earlier, which is the highest inflation reading since 1982.
The broader market had gained ground earlier in the week, but the latest inflation report sparked a wave of selling that erased most of the week’s gains. Investors are worried about the impact of the Federal Reserve’s plan to raise interest rates to fight rising inflation. Such moves to raise interest rates could curb inflation, but they would also put downward pressure on all kinds of investments.
Markets will likely remain volatile as the Fed nears a rate hike and investors gauge the impact.
“What we’re going through is likely to continue in the near term,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance.
Other economies are also feeling the heat from sharp price increases, with some central banks having already decided to raise interest rates. Others abstain. The central banks of Thailand, Indonesia and India chose this week to keep their key rates unchanged.