The U.S. Treasury Yield Curve Briefly Inverts. Should Markets Be Concerned?

On the latest edition of Market Week in Review, Director of Investment Strategies, Shailesh Kshatriya, and Director of Institutional Investment Solutions, Greg Coffey, discussed market reaction to the latest developments in the Russia-Ukraine war. They also assessed potential signals from the recent inversion of a key segment of the U.S. Treasury yield curve, and reviewed March PMI (purchasing managers’ index) numbers from China.

Unpacking the market reaction to Russia-Ukraine peace talks

The week of March 28 kicked off with increasing investor optimism over the status of peace talks between Russia and Ukraine, which have been locked in a month-long war that began when Russia invaded Ukraine in late February, Kshatriya noted. Hopes for an end to the conflict were centered around a framework for de-escalation that could have involved Ukraine being more open to discussions relating to territorial disputes over Crimea and the Donbas region, he explained. In addition, the framework also called for Ukraine to potentially renounce its bid to join NATO (the North Atlantic Treaty Organization) in exchange for security guarantees from Western nations, Kshatriya stated.

Amid the peace talks, he said that Russia offered to reduce its military presence around some Ukrainian cities, including the capital of Kyiv. “Russian negotiators had indicated these moves were proposed to build trust and create conditions for further negotiations, including an eventual meeting between President Vladimir Putin of Russia and President Volodymyr Zelensky of Ukraine,” Kshatriya noted. However, contrary to what the negotiators had indicated, most Russian troops stationed near the capital did not move away from Kyiv, he said. In addition, both Ukraine and Russia expressed disagreement over how much progress was actually made at the March 29 peace talks, he added.