US Fixed income yields remained higher as a flight-to-safety interest that had overshadowed the market late last week eased and concern over Russia/Ukraine crisis moderated. Yields went on to pull back from early session highs after Russia’s Foreign Minister Sergei Lavrov statement to resume dialogue with the US and its allies. Two-year US fixed income yields led the pack as they rose by about 12pbs to close at 1.62% while the five-year maturities rose by 6 bps. The yield on 10-year Treasuries rose by five basis points to close at 2.04%. However, two-year yields dropped by circa 8bps late last week when U.S. officials warned that Russia soon could go to war with Ukraine. This was caused by a fresh demand for US Treasury as investors opted for safe investments to put their cash into. U.S. stocks closed mainly lower in a volatile session as concerns over Russia/Ukraine crisis persisted. Market expectations of tighter monetary policies globally continued to weigh on sentiment across markets. The Dow Jones Industrial Average dropped 172 points (0.5%) to 34,566, the S&P 500 Index decreased 17 points (0.4%) to 4,402, and the Nasdaq Composite was nearly unchanged at 13,791.  WTI crude oil dropped to $94.00 to $93.78 per barrel. The gold spot closed at $1,862 from $1,872 per ounce.

Geo-political concerns over Russia/Ukraine driving market sentiment with yesterday’s whipsaw a result of developments on that front. 10Y DBR yields rallied as much as 10bps from Friday’s close before paring to close just 2bps firmer at 0.283%; the reversal followed reports that as reports filtered through that the Russians remained keen on talks with the West. The 10Y bunds open some 2bps firmer as German Chancellor Olaf Scholz heads to Moscow after talks in Ukraine Monday night. Peripherals traded likewise with 10Y BTP yields having traded some 8bps lower than Friday’s close before paring to close just a basis point firmer at 1.872%. Lagarde’s later address then emphasised that adjustments to ECB policy will be “gradual”.

A weak session in the LATAM space today as the reversal of the UST yields in the afternoon drove the space lower. The selling activity was recorded to be mostly visible from ETFs and RMs on the expected primary supply and a general rates volatility and macro risks. MEX and URUGUA and COLOM continue to underperform, all 60-80c lower on the day in the long end, while PERU was the outperformer, only down 10-25c, despite headlines of the political instability within the Peruvian Government. In Brazil news, the government publicly reaffirmed the country’s diplomatic ties with Ukraine, in response to the criticism of President Bolsonaro proceeding with the planned official visit to Moscow amid the crisis. We also saw some sellers in BRAZIL sovereigns on the day, however the supply was easily absorbed by the street with bonds down only around 30c in the long end. Both PETBRA and PEMEX were lower on the day as well, both down around 1pt in the longer end despite Brent trading around $95-$96 levels, following USTs moves.

The market volatility increased sharply at the beginning of the week, as evidenced by the movement of benchmark RUSSIA 47. The lows of 101-101.5 lvls (the lowest prices since COVID panic sale in March 2020) that seemed very distant recently, were easily reached in the first half of the day. But more interesting was the subsequent move reversal and a rapid rise of the paper to 104-104.5 lvls on the Foreign Minister Lavrov news on Putin’s willingness to continue talks with the West. Such a confident rebound on a seemingly “duty” statement from the head of the Foreign Ministry may indicate that a temporary bottom has been reached. Of course, only if the in-kind negative news like “announced dates for the invasion” will not be published. Yesterday’s statements after the meeting between Olaf Scholz and Volodymyr Zelensky that the issue of Ukraine’s accession to NATO is temporarily not on the agenda, and that Kiev is ready to include a government bill on the “special status” for DNR and LNR in accordance with the Minsk agreements. This news inspires optimism for today’s visit of German Chancellor’s to Moscow. The RUBUSD demonstrated positive dynamics, growing during the day to as low as 76.20 levels from 77.20, however trading slightly weaker at the level of 75.60-75.90 this morning. MICEX showed mixed dynamics, as prices for BRENT at 96$ lvl supported demand for oil sector companies, however, geopolitics trends prevailed here as well, and the main Russian index fell by 1.8% to below 3500 by the end of the day. The OFZs yield curve almost completely went beyond the 10% yield mark. At the same time RGBI fell from 128 to125.5 lvl (lowest since Feb. 2016), and RUSSIA 5Y CDS spread increased again to 250 bp, reflecting the reassessment of Russian risk. The meeting of German Chancellor Olaf Scholz scheduled for today with Russian President Vladimir Putin can give a positive impetus to the Russian market. At the same time, a vote is scheduled for today in the State Duma of Russia on the recognition of the self-proclaimed Lugansk and Donetsk Republics, and in the event of a positive decision, the draft would go to the signature of the Vladimir Putin. This recognition can formally grant to the Russian government an ability to provide material and military assistance to the DNR and LNR, which could create hurdles to the implementation of the Minsk Agreement.