Concerns that problems in the credit market could push the economy into a recession drove investors to the safety of Treasuries on Monday and led to a sell-off of stocks.
In a significant move, the yield on the 10-year Treasury note, which moves in the opposite direction of its price, hit its lowest point in more than three years, suggesting a weakening in investor confidence from already low levels.
All three major stock indexes have now dropped more than 10 percent from their highs, the generally accepted definition of a market correction.
Market specialists say investors are increasingly concerned that they still do not know how bad the fallout in the mortgage market will be, nearly a year after problems surfaced.
“The uncertainty is in the hidden land mines, if you will,” Sam Stovall, chief investment strategist at Standard & Poor’s, said.
For the broader economy, the danger from the rush into Treasuries is that it will further limit the availability of credit to consumers and businesses, which could slow the economy even more. Banks and investors have already become more strict about lending to customers with blemished credit histories and are charging much higher rates to businesses with below investment-grade ratings.
The yield on the 10-year Treasury note fell to 3.841 percent on Monday, from 4.001 percent late on Friday and 4.403 a month ago. It was the biggest one-day drop in the yield in more than three years.
With financial stocks leading the way, the Standard & Poor’s 500-stock index fell 2.3 percent and the Dow Jones industrial average tumbled 237.44 points, or 1.8 percent, to 12,743.44. Both indexes are down more than 10 percent from record closes on Oct. 9. It is the first time they have fallen that much since the bear market ended in October 2002. The Nasdaq composite index was off 2.1 percent, putting it more than 11 percent below its peak on Oct. 31. Much of Monday’s decline came in the last hour and a half.
Stock markets were also down in Europe and Latin America, with Mexico and Brazilian indexes falling about 3 percent. Stocks opened sharply lower in Japan on Monday morning.
Earlier in the day, the Federal Reserve Bank of New York tried to ease some anxiety by saying that it would extend longer-term financing in the money market than it does usually.