Stock Futures Fall as Bond Yields Edge Higher

U.S. government bonds sold off again, pushing the yield on the benchmark 10-year Treasury note to 3.173% on Monday from 3.124% on Friday. That put it on course to settle at another fresh multiyear high. The 10-year yield has risen 1.6 percentage points since the end of 2021, leading some investors to reassess the valuations of technology and growth stocks. Bond yields rise when prices fall. 

“Yields are climbing because investors think inflation is out of control,” said Peter Andersen, founder of Boston-based investment firm Andersen Capital Management. “The reality is that we have been living in an extraordinarily low-rate environment for a long time, and it’s natural for the Fed to be raising rates, regardless of the inflation numbers,” he added.

Last Wednesday, U.S. bonds and stocks rallied after the Federal Reserve approved a half-percentage point increase in its benchmark lending rate to a target range of between 0.75% and 1%. Fed Chairman

Jerome Powell

said officials weren’t considering an even larger increase at the central bank’s next meeting. Mr. Powell also said inflation was much too high and that the Fed would move expeditiously to bring it down. He pointed to a personal consumption expenditure price index, which rose 6.6% in March.

A day after Mr. Powell’s comments, stocks fell sharply and the declines continued through Friday, extending a losing streak for the U.S. market in which the S&P 500 and Nasdaq Composite Index have now fallen for five straight weeks. As of last Friday, the Nasdaq had lost 22% in the year to date period, while the S&P 500 was down 13% and the Dow was 9.5% lower. 

“There was no news from one day to the next that would cause that dramatic shift in sentiment over a 24-hour period. The market volatility shows that there is great uncertainty about where people think we are headed,” Mr. Andersen said. 

The prospect of further interest-rate increases to combat inflation has worried some investors that such measures will slow economic growth. The policy shifts have come at a time when Russia’s war against Ukraine and measures to contain fresh Covid-19 outbreaks in China have clouded the outlook. 

“We have decelerating growth and tightening financial conditions,” said Hani Redha, a portfolio manager at PineBridge Investments. “It’s the opposite of what we’ve had for the 18 months prior to this year, which was the ideal backdrop for risk markets.” 

These fears have led some money managers to hold the dollar, seen as a safer investment in times of volatility, due to its status as the world’s reserve currency. The WSJ Dollar Index, which measures the U.S. currency against a basket of 16 others, rose 0.4% Monday. 

In commodities, Brent-crude futures prices fell 0.7% to $111.58 a barrel. 

Overseas, the pan-continental Stoxx Europe 600 fell 0.7%.

In Asia, Japan’s Nikkei 225 dropped 2.5% on Monday, while Australia’s S&P/ASX 200 fell 1.2%. 

China’s CSI 300 index, tracking the largest companies listed in Shanghai or Shenzhen, declined 0.8%. Hong Kong markets were closed for a public holiday. 

The price of bitcoin tumbled through the weekend and traded at $33,568.46 on Monday, down 6.9% from Friday’s 5 p.m. ET level. The popular cryptocurrency has lost more than a quarter of its value in the year to date period.  

Write to Serena Ng at [email protected] and Caitlin Ostroff at [email protected]