NEW YORK - U.S. Treasury yields fell to one-month lows on Tuesday after data pointed to a cooling economy as the Federal Reserve presses on with aggressively hiking interest rates to tackle soaring inflation.

U.S. business activity slowed moderately in May as higher prices reduced demand for services, while renewed supply constraints because of COVID-19 lockdowns in China and the ongoing conflict in Ukraine hampered production at factories.

Other data showed that sales of new U.S. single-family homes fell more than expected in April, likely as higher mortgage rates and prices squeeze out first-time buyers and those in search of entry-level properties from the housing market. Two-year note yields fell to 2.464%, the lowest since April 19. Benchmark 10-year note yields dropped to 2.738%, the lowest since April 27.

Longer-dated yields have dropped from 3-1/2 year highs as sharp declines in stocks increased demand for U.S. government debt, and as investors worry that the Federal Reserve's aggressive plans to hike rates will tip the economy into a recession.

"There has been some domestic interest in this rate rise, where accounts have come to this decision that a recession is probably a lot closer than the market thinks," said Tom di Galoma, managing director at Seaport Global Holdings in New York.

Minutes from the Fed's May meeting released on Wednesday are likely to show that the U.S. central bank remains committed to tightening policy at a rapid pace as it tackles soaring inflation. Fed funds futures traders are pricing in 50 basis point rate increases for each of the Fed's June and July meetings, and a strong possibility of the same in September. The Fed's benchmark rate is expected to rise to 2.90% by March, from 0.83% now.

However, some investors also see the possibility that the Fed could pivot to a less aggressive stance if the economy weakens significantly. Atlanta Fed President Raphael Bostic said on Monday that it "might make sense" to pause further hikes after the June and July meetings for the U.S. central bank to assess the impact on inflation and the economy.

Inflation expectations also dipped, with breakeven rates on five-year Treasury Inflation-Protected Securities (TIPS), a measure of expected average annual inflation for the next five years, at 2.87% on Tuesday. They have fallen from a peak of 3.62% last month. The Treasury Department will sell $47 billion in two-year notes on Tuesday, the first sale of $137 billion in new coupon-bearing debt this week. The U.S. government will also sell $48 billion in five-year notes on Wednesday and $42 billion in seven-year notes on Thursday. 

(Reporting by Karen Brettell; Editing by Emelia Sithole-Matarise and Nick Zieminski)