U.S. Stocks Brace for Heavy Losses as Treasury Yields Tumble in Flight-to-Safety Move

A shift toward perceived safety drove U.S. Treasury yields lower on Monday, as stocks tumbled at the open following concerns raised by a Chinese AI startup about the valuations of leading technology companies.

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What Happened

The yield on the 2-year Treasury dropped 8.2 basis points to 4.189%, down from 4.271% on Friday.
The yield on the 10-year Treasury declined by 9.1 basis points to 4.533%, compared to 4.624% at the previous close.
The yield on the 30-year Treasury fell 7 basis points, reaching 4.779%, down from 4.849% on Friday.

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What’s Driving the Market

Treasury yields hit or neared their lowest levels for 2025 as risk-averse investors increased their exposure to U.S. government debt. This flight to safety occurred as all three major U.S. stock indexes dropped at the opening bell.

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The Dow Jones Industrial Average, S&P 500, and Nasdaq Composite slid, with the Nasdaq experiencing the sharpest decline. Market sentiment was rattled by news that China-based AI startup DeepSeek had successfully launched its R1 model for problem-solving. Notably, DeepSeek reportedly achieved this milestone with significantly lower expenses compared to major U.S. tech companies, raising questions about the valuations of dominant players in the sector.

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Shares of Broadcom and Nvidia were among the hardest hit, falling 12.78% and 13.05%, respectively, by Monday morning. These companies are key members of the “Magnificent Seven,” a group of leading tech firms that have driven Wall Street’s gains in recent years. This week is pivotal for the sector as four of the Magnificent Seven are set to report quarterly earnings, which could further influence market dynamics.

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Investors are also closely watching the Federal Reserve’s first policy meeting of the year, with a decision expected on Wednesday. While the Fed is widely anticipated to leave interest rates unchanged, the market is eager for updates on inflation trends and the potential economic effects of tariffs implemented during the Trump administration.

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Additionally, the Treasury Department is scheduled to release results from two significant auctions on Monday. A $69 billion auction of 2-year notes is set for 11:30 a.m. Eastern, followed by a $70 billion auction of 5-year notes at 1 p.m. These auctions could provide further insight into demand for U.S. government debt amid the current risk-off sentiment.

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Broader Implications

The retreat in Treasury yields reflects investors’ growing unease about the sustainability of high valuations in the tech sector, which has been a major driver of market gains over the past few years. The launch of DeepSeek’s R1 AI model has intensified these concerns, particularly as it highlights the potential for smaller, more cost-efficient players to disrupt the dominance of established giants.

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At the same time, the market awaits crucial signals from the Federal Reserve, whose commentary on inflation and economic risks could shape investor expectations for the months ahead. With the earnings season heating up and several high-profile tech firms set to report their results, this week will be a critical test for both equity and fixed-income markets.

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For now, the movement in Treasury yields underscores the current preference for safety, as investors navigate a mix of geopolitical developments, earnings volatility, and uncertainty surrounding Federal Reserve policy.

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