The U.S dollar was under pressure against most of its other trading partners as well, though it managed to eke out some gains in the early afternoon in Asia.
The trade war between the USA and China has fueled uncertainty in global markets and spurred investors to buy haven assets.
The bond-market benchmark index is mostly composed of investment-grade debt, with a significant weighting in government bonds with extended maturities.
"The rally in bonds in the US and Europe is continuing because expectations for a trade deal are moving further away", said Antoine Bouvet, senior rates strategist at ING in London.
The yield curve is considered inverted when long-term bonds see their returns fall below those of short-term bonds. While a US recession has never begun without an inverted yield curve, the pattern has occurred in the past without leading to a downturn. The 2-year note was down 3.2 basis points to 1.496%, while the 30-year bond tumbled 4.1 basis points to 1.926%. Citigroup shares dropped 1.7%.
More grim news: the spread between the three-month Treasury yield and that of the 10-year note plunged to -52 basis points, its lowest since March 2007.
The Dow Jones Industrial Average climbed 189, or 0.7%, to 25,966. The Nasdaq slid 0.3% to 7,826.95.
Smaller company stocks bore the brunt of the selling, which sent the Russell 2000 index down 19.96 points, or 1.4%, to 1,456.04.
The S&P 500 fell 9.22 points, or 0.3%, to 2,869.16. If those losses hold, August would be the second monthly drop for the market this year after May.
Investors are "finding it hard to put a finger as to where the ongoing U.S".
Still, much of the market's action has been a reaction in recent weeks to headlines on trade. -China trade dispute are fading and falling bond yields are reflecting fears of a potential economic downturn.
Data showing a fall in US crude stockpiles lifted oil prices. "People still want to lock in yields even though they are lower". The recession started two months later in December 2007. An updated snapshot is due out Friday.
While an inverted yield curve has preceded every US recession, it is not a signal that one is imminent. The yield curve often inverts prior to a U.S. recession. Treasury Secretary Steven Mnuchin said United States trade officials expect Chinese negotiators to visit Washington, but wouldn't say whether a previously planned September meeting would take place, while White House trade adviser Peter Navarro played down a quick resolution.
Investors were also weighing a mixed batch of corporate earnings reports and outlooks Wednesday.
Autodesk slid 6.7 percent after the software company slashed its full-year forecasts, while Movado Group sank 15 percent after the watchmaker's earnings and revenue fell short of Wall Street's expectations.
British government five-year bond yields plumbed the lowest since October 2016 after the Queen Elizabeth gave the nod to Prime Minister Boris Johnson's move to effectively shut parliament from mid-September for around a month, to curtail its ability to derail his Brexit plan.
Defensive sectors gain traction amid risk-off flows on Wednesday. Wholesale gasoline rose 3 cents to $1.65 a gallon. The euro gained to $1.1083 from $1.1078.
Gold slipped $3.20 to $1,537.80 per ounce.
Texas Instruments added 1.4% Tuesday.
The dollar fell to 105.78 Japanese yen from 106.19 yen on Monday.
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