US two-year yields have decreased by 10 basis points to 3.87% as market participants seek safer investment options.

The S&P 500 has fallen below its January low, erasing all gains made since the election.

Currently, the S&P 500 is down 1.4%, the Nasdaq has declined by 1.3%, and the Russell 2000 has decreased by 1.6%.

Market Confidence Weakens

This movement in short-term Treasury yields highlights a growing preference for reduced risk. When investors shift their capital into government bonds, it often reflects uncertainty or a reassessment of expected returns elsewhere. The 10 basis point drop in two-year yields signals an increased demand for safe assets, suggesting that market confidence has weakened.

Equities continue to face downward pressure. The S&P 500’s decline below its January low indicates that prior optimism has been erased. It is not just a single index under strain—broad-based selling is present, with the Nasdaq and Russell 2000 also experiencing losses. The fact that the S&P 500 has given up all post-election gains adds to the argument that sentiment has turned more defensive.

In periods like this, price action becomes a key indicator. A 1.4% drop in the S&P 500, alongside a 1.3% dip in the tech-heavy Nasdaq, suggests that losses are not confined to one particular sector. Meanwhile, the Russell 2000’s 1.6% decline implies small-cap stocks are struggling even more. This points to a general aversion to riskier assets rather than a rotation within equities.

Potential Market Openings

Short-term swings could create openings, but momentum needs to stabilise before conviction returns. If safe-haven flows persist, further downside across equities may not be out of the question. Yield-sensitive assets will likely respond rapidly, especially if treasuries continue to attract demand.

Create your live VT Markets account and start trading now.