Russia Invades Ukraine. What Does This Mean For Investors?

What many feared may happen came true overnight with Russia invading Ukraine from all sides—Crimea, Belarus and Russia.

Events have moved quickly since our update on February 22. It’s unclear whether this is the shock and awe phase of a limited incursion or the beginning of a full-scale invasion that seeks regime change in Kyiv. The invasion represents a humanitarian tragedy with terrible consequences for millions of people. Investment markets are now reacting to the uncertainty created by events. The implications for European and global political stability are a key issue. We are evaluating the portfolio implications of events through our cycle, value and sentiment (CVS) framework. We’re assessing the risks to our global cycle view from a full-scale invasion. We also continue to monitor our composite sentiment index to judge whether investor psychology has reached an unsustainable level of panic that justifies a more risk-on stance.

Markets react

USD/RUB touched 90 overnight before fading back to the mid 80s—a record low. Global stocks tumbled, with the S&P 500 Index falling 2.50% at open, while havens and commodities surged. The flight to safety saw the 10-year U.S. Treasury yield touch 1.86% and gold hit the highest since early 2021. The dollar and yen jumped, while the euro and commodity currencies retreated. European natural gas soared as much as 41%, while West Texas Intermediate (WTI) crude oil topped $100 and aluminum hit a record. Bitcoin slumped.

Impact on fixed income

Both Russia and Ukraine sovereign debt are facing sharp declines, down 30-40 points across the curve overnight. Russian credit is also wider by 20-30 points, depending on the name and credit quality. In the U.S., a seven-year Treasury auction is scheduled for this afternoon and many are expecting the highest seven-year yield since July 2019. Investment-grade credit is wider by five-to-seven basis points, with high-yield credit down 15-20 basis points, led by lower volume of 10%. Treasury flows are mixed.