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Geopolitical Risk Overshadows FOMC Policy Guidance

US
While short end rates trade softer, underscoring policy expectations (EDH2 traded down to 99.545 low overnight), increasing geopolitical tension between US/allies vs. Russia over potential Ukraine invasion spurring carry-over risk-off tone.
  • Rates trading firmer, yield curves flatter (5s30s 50.2) amid robust overnight volumes (TYH>510k). US Tsy 30Y Bond futures little off overnight highs, 30YY 2.0457 (2.0935H/2.0307%L) are back to Jan 14 levels as markets look forward to Wed's FOMC policy announcement, forward guidance for Mar liftoff expected, timing of balance sheet run-off and quantitative tightening.
  • Equities weaker but off overnight lows after closing below 200DMA last Friday.
  • Rumored last Friday, US State Dept is urging families of diplomats to leave Ukraine as "military action by Russia could come at any time." Link: State Dept. NATO forces on standby "and sending additional ships and fighter jets to NATO deployments in eastern Europe”.
  • Omicron pandemic concerns remain but World Health Organization (WHO) says: "two years on, we could be entering a new phase in the pandemic with plausible hope for stabilization."
  • Limited economic data: Chicago Fed Nat Activity Index, Markit PMIs, Fed remains in blackout through Thursday.
  • The 2-Yr yield is up 0.9bps at 1.01%, 5-Yr is down 1bps at 1.5472%, 10-Yr is down 2.1bps at 1.7369%, and 30-Yr is down 2bps at 2.0508%.
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