Stocks Pare Losses, Even as the West Prepares Russia Sanctions

“I suspect it’s a sort of hope that this move has been made, some sanctions will be applied, but obviously not the full scale of sanctions,” she said. “But if it continues to escalate, then obviously that would be very bad for the markets,” she added.

A war between Ukraine and Russia is likely to disrupt global supply chains of commodities, causing food and energy costs to rise and increasing the risk of a prolonged period of faster inflation. Russia is the world’s largest supplier of wheat and is a critical source of energy for Europe, providing nearly 40 percent of the continent’s natural gas and 25 percent of its oil. An extended conflict could worsen Europe’s already high energy bills.

Asian stock markets closed lower. The Hang Seng Index in Hong Kong fell 2.7 percent, its worst day since July, and the Nikkei 225 in Japan dropped 1.7 percent.

“All in all, market reaction still remains disciplined even though more volatility can be expected as the political and military situation evolves and potentially escalates,” Gregor Hirt of Allianz Global Investors wrote in a note.

The potential global economic ramifications of the conflict in Ukraine had encouraged traders to seek the safety of Treasuries, which pulled down yields for the benchmark U.S. bonds. But investors have another concern on their minds: how far and how quickly the Federal Reserve will raise interest rates, which are currently near zero, to tackle inflation. Higher interest rates could slow the economy by discouraging spending and investment.

About a week ago, yields of the 10-year Treasury note passed 2 percent, their highest since mid-2019, as traders prepared for the rate increases. On Tuesday, the yield hovered around 1.93 percent. As bonds rise in price, yields fall.

The potential for rate increases, which could start as soon as March, has made owning risky assets, like technology stocks, unattractive to investors. Several indicators are already in correction territory, including the tech-heavy Nasdaq composite, which is down more than 17 percent since its high in November.