Stocks end lower amid bond volatility
Stocks ended moderately lower Tuesday after cutting sharp early losses as volatility in the bond market spooked investors.
In early trading, the yield on the 10-year Treasury note shot up to its highest level since late November as it rose as high as 2.355%, before retreating back down to 2.27%. That's still up from around 2% in late April.
The Dow Jones industrial average ended down 37 points -- 0.2% -- after falling as much 170 points.
The Standard & Poor's 500 index and the Nasdaq composite index finished down 0.3% and 0.4%, respectively.
STOCKS: Live markets blog
In a high-profile deal, Verizon announced it is buying digital conglomerate AOL for $4.4 billion. AOL shares soared 18.6% while Verizon (VZ) ended 0.4% lower.
The bump up in yields began earlier this month amid fears of a Federal Reserve rate hike, and a sharp rise in rock-bottom government bond yields in Germany, which nearly hit 0%, at a time there were early signs of economic improvement in the eurozone and a resulting drop in global deflation fears.
The selloff in global bond markets is due in large part to investors being less pessimistic about future growth potential in Europe, which means traders are unwinding many of the trades that were working earlier in the year, such as buying German government bonds.
Higher yields cause all sorts of headaches. When the yield on the 10-year note goes up, it means borrowers have to pay more for money they borrow on things like mortgages and student loans. A quarter of a percentage point rise won't break the bank, but it does mean you'll have to cough up an additional $15 a month for each $100,000 in mortgage debt. But if rates jump further, which Federal Reserve chair Janet Yellen has said is possible once the U.S. central bank starts to hike short-term rates, the financial bite could become more painful.
A sharp rise in yields also tends to spook stock investors. Not only do rising bond yields make stocks, especially ones purchased mainly for their dividend yields, appear less attractive, but higher borrowing costs at some point could cause economic activity to slow, and crimp corporate earnings.
Stocks also came under pressure after the latest talks between Greece and its European creditors failed to result in an agreement on bailout terms.
European shares were lower Tuesday. Eurozone official Jerone Dijsselbloem said progress was made at a meeting Monday between Greek and other European finance ministers, but more time and effort was needed to reach a deal.
Greece is facing an acute cash crunch that many in financial markets think could see the country default on its debts, impose restrictions on capital flows and possibly leave the euro currency bloc.
In Asia, Japan's Nikkei 225 index gained a fractional 0.02% and Hong Kong's Hang Seng index dropped 1.1%. The Shanghai Composite rose 1.6%, boosted by an interest rate cut at the weekend.
Stocks fell Monday as Wall Street failed to extend Friday's strong jobs-fueled rally and a drop in oil prices helped push energy stocks sharply lower.
Contributing: Jane Onyanga-Omara, Associated Press