February brought heightened volatility as a result of domestic data and geopolitical developments. The month began with a jump in payrolls here at home, leading to an increase in rates and widening credit spreads. A higher-than-expected CPI print with strong wage growth reinforced markets views, led at least one Fed Governor to suggest that 100 basis points (bps) of Fed Fund increases by mid-summer would be necessary, and brought the 10-year benchmark Treasury to a 2.04% yield. While supply chain issues were still seen as the primary driver of inflation, cost pressures, energy prices, and strong demand came into greater focus by the market.
Shortly before mid-month, a potential Russian invasion of Ukraine dominated the headlines.. The government bond market initially rallied in a flight to quality trade. Yields rose again and traded between 1.85% and 2%, given the market’s initial assessment of sanctions and the impact of war on growth and energy prices. As Ukraine came under full-fledged attack and much tougher sanctions by the West emerged, the bond market rallied into month end.