U.S. Treasury Yields Decline Amid Stock Market Decline, Marking Second Consecutive Daily Loss

U.S. Treasury yields dropped sharply on Tuesday, with the 10-year note yield falling to 4.21%, the lowest level since early December, while the 30-year bond yield declined to 4.48%. The move reflects growing market concerns over economic growth, despite persistent inflation pressures, prompting a flight to quality. Meanwhile, major equity indices posted losses, with the S&P 500 closing at 5,234.62, a decline of 0.89%, and the Nasdaq Composite falling 0.92% to 16,454.33, marking its second consecutive daily drop. The Dow Jones Industrial Average also declined by 0.61%, ending at 38,820.45. The shift in investor sentiment came despite a slightly better-than-expected jobs report earlier in the week, which showed nonfarm payrolls rose by 228,000 in December, above economists’ forecasts of 200,000. However, the data did not quell concerns about a potential rate hike pause by the Federal Reserve in early 2026, with market pricing suggesting a 57% chance of a rate hold at the January FOMC meeting. Bond market activity suggests traders are pricing in a higher likelihood of a near-term economic slowdown. The yield curve remained inverted, with the 2-year Treasury yield at 4.59% and the 10-year at 4.21%, a persistent signal of cautious growth outlook. The two-year note's yield dropped 5 basis points, while the 10-year saw a 7-basis-point decline. The rally in Treasuries and dip in equities have broad implications across asset classes. Fixed-income investors benefited from rising prices, while equities, particularly tech-heavy names, saw renewed pressure. The iShares U.S. Treasury Bond ETF (GOVT) rose 0.7%, while the SPDR S&P 500 ETF (SPY) dropped 0.9%.