Two-year U.S. Treasury yields saw the biggest monthly improvement since 2016 and 10-year rates appeared to be the key 2% level. In Germany, for the first time since 2019, 10-year yields have risen by more than 0%.
A major event risk usually sends investors back to securities, which represent the planet’s safest assets, and this time will be no different. Whether the Russian invasion of Ukraine risks fueling oil prices and fueling inflation.
“Clearly, if the Ukraine story goes wrong, there will be a substantial demand for treasuries, and 10 years of success will be halted by 2%,” said Padhraic Garvey, regional research head at ING America. Other safe havens include gold, already a two-month high, and the yen.
Cereals and wheat
If there is any disruption to the flow of grain from the Black Sea region it will have a major impact on prices And add more fuel to food inflation at a time when food cheapness is a major concern around the world following the economic damage caused by the Govt-19 epidemic.
Four major exporters – Ukraine, Russia, Kazakhstan and Romania – ship grain from the Black Sea ports, which could be disrupted by any military action or sanctions.
According to data from the International Grain Council, Ukraine is expected to become the world’s third largest corn exporter and the fourth largest wheat producer in the 2021/22 season. Russia is the world’s largest exporter of wheat.
“Geopolitical risks have increased in recent months in the Black Sea region, which could affect the way wheat prices move forward,” said Dominic Schneider, UBS’s strategist.
Natural gas and oil
Energy markets could suffer if tensions turn into conflict. AndEurope relies on Russia for about 35% of its natural gas, most of it through pipelines to Germany via Belarus and Poland. North Stream 1 goes directly to Germany, the rest goes through Ukraine.
In 2020, the amount of gas from Russia to Europe fell after locks suppressed demand and was not fully recovered when consumption rose last year, which helped push prices to record highs.
Germany said it could suspend the new Nord Stream 2 pipeline from Russia as part of a possible blockade if Russia invades Ukraine, which is expected to increase gas imports to the camp, but also increases reliance on Moscow for supplies.
SEB commodity analyst Bjarne Schieldrop said markets would significantly reduce Russia’s natural gas exports to Western Europe via Ukraine and Belarus in the event of sanctions.
Oil markets could also be affected. JPMorgan said tensions risked a “massive resurgence” in oil prices, which if rising to $ 150 a barrel would cut global GDP growth by 0.9% a year in the first half of the year, while inflation would more than double. Up to 7.2%.
Bonds and regional currencies in dollars
Russian and Ukrainian assets will be at the forefront of the market downturn if there is potential military action.
Dollar bonds between the two countries have outperformed their counterparts in recent months as investors cut back on their exposure amid an expansion between Washington and its allies and Moscow.
Ukraine’s fixed-income markets are primarily competing with emerging market investors, while Russia’s overall position in the capital markets has shrunk in recent years due to sanctions and geopolitical tensions, thereby mitigating the threat of infection.
However, the Russian ruble and the Ukrainian hryvnia were also affected, making them the worst performing currencies in emerging markets so far this year.
Chris Turner, ING’s global head of markets, said the geopolitical market on the Ukraine-Russia border provided “significant uncertainty.”
“Events in late 2014 reminded us of the liquidity gap and the hoarding of US dollars, which led to a significant fall in the ruble,” Turner said.