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Bond Report: 2- and 10-year Treasury yields fall to lowest levels in over a month as S&P 500, Nasdaq extend losses

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An aggressive rally in Treasurys pushed two- and 10-year yields to their lowest levels in more than a month on Tuesday, as persistent concerns about U.S. growth sent the S&P 500 index and Nasdaq Composite to lower finishes.

What yields are doing

The yield on the 10-year Treasury note
TMUBMUSD10Y,
2.755%

declined 9.9 basis points to 2.758% from 2.857% at 3 p.m. Eastern on Monday. That’s the lowest yield since April 13 and the biggest one-day drop since May 12, based on 3 p.m. levels, according to Dow Jones Market Data.

The 2-year Treasury-note yield
TMUBMUSD02Y,
2.495%

fell 13.9 basis points to 2.483% from 2.622% Monday afternoon. That’s the lowest since April 18 and biggest one-day drop since May 4.

The yield on the 30-year Treasury bond
TMUBMUSD30Y,
2.969%

declined 9.4 basis points to 2.971% from 3.065% late Monday. That’s the lowest since April 29 and biggest one-day drop since April 20.

What’s driving the market

Treasury yields, which have been hit by back-to-back weekly declines, fell further on Tuesday as global equities sold off —- with lower revenue and adjusted EBITDA guidance from Snapchat parent Snap Inc. serving as the catalyst. Analysts have attributed renewed demand for Treasurys to a flight to safe havens as investors continue to fret about the potential fallout from high inflation, rising borrowing costs and possible systemic risks.

Read: Chances of a markets-led recession arriving sooner than expected are growing by the day, investors and traders say

The Nasdaq Composite led the three major U.S. stock indexes lower for much of the day on Tuesday, before the Dow Jones Industrial Average turned higher into the closing bell. The large-cap benchmark S&P 500 index
SPX,
-0.81%

is on track for its worst 100-trading-day start to a new year since 1970, according to Dow Jones Market Data. For the Nasdaq 100, it’s poised to be the worst ever.   

Read: When will stocks find a bottom? Treasury rates need a footing first, says this strategist

U.S. economic data released Tuesday showed the S&P Global U.S. purchasing managers index for services fell to a four-month low of 53.5 in May from 55.6 in the prior month. The manufacturing PMI hit a three-month low of 57.5 versus 59.2 previously.

Meanwhile, new home sales plunged as high prices and rising mortgage rates discouraged buyers. Sales slowed to a 591,000 annual rate in April from 709,000 in the prior month.

Investors remain focused on inflation and the Federal Reserve’s response. The central bank, which is set to begin unwinding its balance sheet on June 1, delivered a half percentage point rate increase earlier this month following a more traditional quarter-point, or 25 basis point, hike earlier this year. Fed officials have signaled at least two more half-point rises are in store.

Minutes of the Fed’s May 3-4 meeting are scheduled for Wednesday afternoon. The Fed’s preferred inflation indicator — the core personal consumptions expenditure index — will come out Friday morning.

What analysts say

“Earnings from major retailers were always going to be important this week.  Now, investors are even more eager to determine whether the economy is disturbing industries – or simply individual business models,” said Jim Vogel of FHN Financial.

“Until traders can sort between winners and also-rans, the default assumption for US rates is higher chances for a recession.”

New home sales plunge as high prices and rising U.S. mortgage rates discourage buyers

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