As Russia continues waging war on Ukraine and wage growth disappointed in this morning's jobs report, bonds are rallying back toward the best levels of the week.

We didn't expect the headline jobs number to matter today given that Fed Chair Powell has already promised the most explicitly telegraphed rate hike in the history of the FOMC, but the other components of the report--like "wages"--may have altered the expectations about the pace of rate hikes after March.  Indeed, Powell mentioned the risk of a wage/price spiral in this week's testimony.  Such a thing could certainly force the Fed to hike faster and normalize its bond purchases in larger chunks, but alas!  Wages came in at 0.0% month-over-month versus a median forecast calling for 0.5% growth after last month's 0.6% level.

With that, the bond market was able to extend a rally that began at the start of the overnight session after Russia attacked a large nuclear power plant (sufficiently to start a fire in an administrative building).  Said fire captured the world's attention for almost the entire overnight session, but only in an emergent way for the first few hours.  After that, it merely served as a proof of concept.

What concepts did it prove?  Perhaps "reinforce" is a better word.  Either way, it was a reminder that things could go from stagnant to catastrophic very quickly.  Markets continue trading in a

Another way to visualize the Ukraine effect is in the abatement of Fed rate hike expectations over the course of 2022.

At this point, Wednesday's mega sell-off increasingly looks like a big, bold correction to the dominant theme of risk-aversion.  The normal bond market reaction is complicated by the inflation implications of this conflict.  Were it not for surging commodities prices at a time where inflation is already a major concern, bonds would likely be doing much better.  Indeed, if we factor out inflation, we see yields are much closer to long-term lows (green line below).

And here's a wider angle view of the same chart for context on inflation expectations: