U.S. Treasury yields tumbled Monday as traders moved to price in big rate cuts from the Federal Reserve, after weak jobs data stoked worries that the U.S. economy could be heading for a recession.

The two-year U.S. Treasury yield, which is sensitive to Fed rate expectations, dropped to 3.691% in European trading, its lowest since May last year. It was last down 10 basis points (bps) at 3.77%.

The yield, which moves inversely to the price, plunged 53 bps last week.

Friday's nonfarm payrolls data - which showed the U.S. unemployment rate unexpectedly rose in July and jobs growth slowed - followed a slew of disappointing earnings results from major tech firms, setting off a global stock selloff and driving investors to safe haven assets.

Investors are also grappling with a dramatic rally in the Japanese yen which has rocked the country's markets, helping send the Nikkei 225 stock index down 12.4% on Monday in its biggest one-day drop since 1987. U.S. S&P 500 futures were down 2.7%.

The yield on the benchmark U.S. 10-year Treasury note was down 5 bps at 3.742%, having touched a one-year low of 3.678% earlier in the session. The yield sank nearly 40 basis points last week, the largest weekly fall since March 2020.

Michael Weidner, co-head of global fixed income at Lazard Asset Management, said the rally in bond markets was being amplified by investors worrying about their positions in tech stocks and by thin summer markets.

"The move over the last two days in particular, that's not as much driven by fundamentals as it is by the correction in U.S. equity markets," he said.

"We believe still that a soft landing (for the economy) is more of a base-case scenario."

Markets are now anticipating around 125 bps of U.S. rate cuts this year, up from around 90 bps on Friday and 50 bps at the start of last week.

Traders now think a 50 bp cut in September is a near certainty, according to derivative market pricing.

The closely watched U.S. 2-year-to-10-year yield curve narrowed its inversion, to 2 bps, the least since July 2022, reflecting expectations for a sharp easing of short-term yields.