U.S. stocks fell to session lows and short-dated Treasuries held on to losses as negotiations over raising the U.S. debt ceiling remained at an impasse.

While negotiations continued on Tuesday, progress appeared limited, with some House Republicans questioning the urgency imposed by a deadline from Treasury Secretary Janet Yellen for when the government will start missing some debt payments.

Investors have been demanding higher premiums to hold US debt, especially those at the highest risk of default, with little time left for politicians to find an agreement. Yields on securities maturing June 8 are holding above 5.8 per cent compared to bills maturing May 30 that are yielding around 3.2 per cent.

“The fact that some of these politicians are contemplating default publicly is a bad sign,” said Mike Zigmont, head of trading and research at Harvest Volatility Management.

The S&P 500 fell 0.7 per cent, led lower by industrials and financials. Lowe’s Cos. cut its sales outlook, citing a slowdown in consumer spending. Broadcom Inc. signed a multibillion-dollar deal with Apple Inc. to develop 5G radio frequency components. And a rout in luxury-good makers including Hermes International wiped out more than $30 billion in value.

President Joe Biden and House Speaker Kevin McCarthy called their discussions on Monday productive. But an agreement on the debt limit remains elusive, with McCarthy pleading with Republicans to stay united on their demands in order to avert a U.S. default.

“As investors, it’s really hard to price the debt ceiling,” said Remi Olu-Pitan, head of multi-asset growth and income at Schroders. “We have nothing to hold onto. We know that it’s a big risk, but it’s really hard to quantify and position for in advance.”

Invesco Chief Global Market Strategist Kristina Hooper said she sees a brief technical default as a real possibility, which is more likely to be reflected in bond prices, rather than stocks.

“The negotiating parties have gotten more pessimistic,” she said. “And it suggests to me that we’ll see more market turbulence in coming days.”

In economic news, U.S. new-home sales unexpectedly rose to a more than one-year high, and U.S. business activity grew in May by the most in over a year.

Minneapolis Fed President Neel Kashkari said Tuesday that if inflation were to become more entrentched, the Federal Reserve could keep interest rates elevated for longer.

Minutes expected Wednesday from the last Federal Open Market Committee meeting will offer traders the latest insights into whether interest rates will be paused at the Fed’s next meeting in June.

“While a pause might not strictly translate to terminal, it goes without saying that the bar to restart hikes will be very high in the current environment,” BMO strategist Ian Lyngen wrote in a note.

Key events this week:

• Fed issues minutes of May 2-3 policy meeting, Wednesday
• Bank of England Governor Andrew Bailey speaks, Wednesday
• U.S. initial jobless claims, GDP, Thursday
• Interest rate decisions in Turkey, South Africa, Indonesia, South Korea, Thursday
• Tokyo CPI, Friday
• U.S. consumer income, wholesale inventories, durable goods, University of Michigan consumer sentiment, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 0.7 per cent as of 1:59 p.m. New York time
• The Nasdaq 100 fell 0.9 per cent
• The Dow Jones Industrial Average fell 0.3 per cent
• The MSCI World index rose 0.2 per cent

Currencies

• The Bloomberg Dollar Spot Index rose 0.2 per cent
• The euro fell 0.3 per cent to US$1.0778
• The British pound fell 0.1 per cent to $1.2420
• The Japanese yen was little changed at 138.54 per dollar

Cryptocurrencies

• Bitcoin rose 1.1 per cent to $27,207.89
• Ether rose 1.7 per cent to $1,849.99

Bonds

• The yield on 10-year Treasuries was little changed at 3.71 per cent
• Germany’s 10-year yield advanced one basis point to 2.47 per cent
• Britain’s 10-year yield advanced nine basis points to 4.16 per cent

Commodities

• West Texas Intermediate crude rose 1.8 per cent to $73.36 a barrel
• Gold futures were little changed