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Bond Report: 10-year U.S. Treasury yield falls below 2.8% as stocks open to renewed pressure

Treasury yields were back under pressure Tuesday, with the 10-year falling to 2.77%, as all three major U.S. stock indexes moved lower in morning trading, stirring safe-haven demand for government debt.

What yields are doing

The yield on the 10-year Treasury note
TMUBMUSD10Y,
2.731%

fell to 2.777% versus 2.857% at 3 p.m. Eastern on Monday.

The 2-year Treasury-note yield
TMUBMUSD02Y,
2.503%

was 2.545%, down from 2.622% Monday afternoon.

The yield on the 30-year Treasury bond
TMUBMUSD30Y,
2.954%

pulled back to 2.987% from 3.065% late Monday.

What’s driving the market

Treasury yields fell further after back-to-back weekly declines. Analysts have attributed renewed demand for Treasurys to a flight to safe-haven assets fueled by a stock-market selloff that’s seen the large-cap benchmark S&P 500 index
SPX,
-2.31%

tumble toward a bear market last week. Earlier this month, the 10-year briefly rose above 3% to its highest level in around 3.5 years.

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

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, rise earlier this year. Fed officials have signaled at least two more half-point rises are in store.

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 from 55.6 in May. The manufacturing PMI hit a three-month low of 57.5 versus 59.2 previously.

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.”

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