The S&P 500 tumbled for a second day as the stop-and-go debt talks unnerved traders. Fitch placed the US AAA rating on watch negative, with its model suggesting that a default would drag the rating to AA-. That move came as White House and Republican negotiators resumed talks on lifting the debt ceiling, trying to overcome an impasse just days before a potentially catastrophic default. The S&P fell 0.75% while the NASDAQ was down a further 0.6%.

Investors demanded higher premiums on bills that mature when the government is seen most at risk of default. The June 1 bill yield passed 7%. There’s a roughly one-in-four chance that the US will hit the so-called X-date — at which the government runs out of cash, JPMorgan Chase & Co. said. Yields on longer-term Treasuries rose early in the session, leading to strong demand at a five-year Treasury auction. Yields

moved higher to close out the session with the 2-year rising 6bps to 4.36% while the 10-year was 5bps higher to 3.74%.

A gauge of the dollar strength maintained gains after minutes of the Federal Reserve’s last meeting showed officials appeared divided over further rate increases. Meanwhile, bond traders stepped up wagers on a June rate hike by the Fed, spurred in part by surging UK policy-rate expectations after an upside surprise in inflation data. The New Zealand dollar extended losses after the Reserve Bank raised rates but also signaled that no further tightening will be needed.

Bitcoin tumbled, gold declined and crude oil rose.

Analytics by

Lenny Hayes 

Chief Technical officer of Tradehall