Stock Futures Drop Ahead of Powell’s Comments

A recent selloff in government bonds has lifted Treasury yields, curbing investors’ appetite for the technology stocks that had soared in a low-yield environment. Some money managers are betting that additional fiscal stimulus in the U.S. will boost inflation and cause the Fed to raise interest rates sooner than they had expected. That has led to a jump in real yields, or the returns on bonds after adjusting for inflation expectations.

Investors say they are hoping Mr. Powell will answer questions on how he views the jump in yields when he speaks at The Wall Street Journal Jobs Summit at 12:05 p.m. ET. Central bank officials have previously said that they will keep monetary policy loose until the economy is stronger, and that they view the rise in bond yields as a signal that investors are optimistic about the U.S. economic recovery.

“Powell’s comments today are going to be really important,” said Hugh Gimber, a strategist at J.P. Morgan Asset Management. “Clearly, what we’re seeing over the last few weeks is equities being disrupted by the pace of the rise in real yields, and that puts the Fed in a tough space.”

The Fed chair’s comments will also offer one of the last opportunities for markets to hear from key policy makers before a blackout period begins ahead of the next monetary policy review in mid-March. “This is his real opportunity, prior to the next Fed meeting, to give investors clarity on how the Fed is viewing the bond market,” he added.

The yield on the 10-year U.S. Treasury note ticked down to 1.467{a3b37e57a53f84d6443a5356ab02984f87900b4dee9193a01d6bf48d204ad87c}. It had jumped to 1.469{a3b37e57a53f84d6443a5356ab02984f87900b4dee9193a01d6bf48d204ad87c} on Wednesday, its second-highest level this year, ending three days of declines. That level marks a steep climb from early January, when it was as low as 0.915{a3b37e57a53f84d6443a5356ab02984f87900b4dee9193a01d6bf48d204ad87c}. Yields rise when bond prices fall.

A key measure of investors’ inflation expectations also surged higher yesterday. Five-year breakevens—which reflect the expected pace of price increases over the five-year period that begins five years from now—climbed above 2.5{a3b37e57a53f84d6443a5356ab02984f87900b4dee9193a01d6bf48d204ad87c} for the first time in 13 years before closing at 2.487{a3b37e57a53f84d6443a5356ab02984f87900b4dee9193a01d6bf48d204ad87c} Wednesday, according to Deutsche Bank.

Yields on Treasury inflation-protected securities (or TIPS), which are a proxy for the real yields, have also shot upward. The 10-year TIPS yield rose to minus 0.759{a3b37e57a53f84d6443a5356ab02984f87900b4dee9193a01d6bf48d204ad87c} Thursday, from roughly minus 1.089{a3b37e57a53f84d6443a5356ab02984f87900b4dee9193a01d6bf48d204ad87c} at the end of last year, according to Tradeweb. It briefly closed as high as minus 0.635{a3b37e57a53f84d6443a5356ab02984f87900b4dee9193a01d6bf48d204ad87c} at the end of February, when there was a wave of selling in the government bond market.

Expectations for U.S. economic growth have been bolstered by a proposed $1.9 trillion Covid-19 relief package. Senate Democrats agreed Wednesday to narrow eligibility for some of the direct payments that are part of the bill, a concession to centrists whose support is needed to pass it.

“You basically have fiscal stimulus feed through to consumption, which means earnings can go up and that will support equity markets,” said

Esty Dwek,

head of global market strategy at Natixis Investment Managers.

She said she expects sectors like banks that would benefit from the economic reopening to perform well as investors exit richly valued technology stocks. “The headline numbers of the indexes sometimes mask that it has been more of a rotation in equities rather than out of equities.”

The stimulus package should also increase support for unemployed people, which will bolster consumer spending and the economic recovery, Ms. Dwek said.

Fresh data on the number of Americans applying for first-time unemployment benefits in the week ended Feb. 27 is due at 8:30 a.m.

In energy markets, brent-crude futures, the benchmark overseas, was relatively flat at $64.08 a barrel. Saudi Arabia and Russia are discussing a proposal to bring back a combined one million barrels a day of oil to global markets, The Wall Street Journal reported. The two sides are preparing to hammer out a deal as an alliance of some of the world’s biggest producers meets on Thursday.

Overseas, the pan-continental Stoxx Europe 600 fell 0.8{a3b37e57a53f84d6443a5356ab02984f87900b4dee9193a01d6bf48d204ad87c}.

Most major Asian markets fell by the close of trading in a technology-led selloff that mirrored Wednesday’s trading in the U.S.

In Japan,

SoftBank Group Corp.

fell more than 5{a3b37e57a53f84d6443a5356ab02984f87900b4dee9193a01d6bf48d204ad87c}, helping pull the Nikkei 225 down more than 2{a3b37e57a53f84d6443a5356ab02984f87900b4dee9193a01d6bf48d204ad87c}. In Hong Kong, Chinese technology giant

Tencent Holdings

lost more than 4{a3b37e57a53f84d6443a5356ab02984f87900b4dee9193a01d6bf48d204ad87c}, while the city’s sector-focused Hang Seng Tech index retreated more than 5{a3b37e57a53f84d6443a5356ab02984f87900b4dee9193a01d6bf48d204ad87c}. Broad market benchmarks in Australia, South Korea, and mainland China also fell.

Markets were weighed down by uncertainty over the pace of global economic recovery, as well as concerns that quickening inflation could eventually lead to higher interest rates, according to Justin Tang, the head of Asian research at United First Partners in Singapore.

“On one hand, you want the economy to grow, but the massive cash in the economy raises the boogeyman of inflation,” he said. “I’m not sure if the economy can actually take higher interest rates at the moment. We are recovering, but I’m pretty sure we’re not out of the woods yet,” he added.

Mr. Tang said the recent pullback was reminiscent of 2018, when the tech sector sold off as bond yields rose, though he noted that episode quickly eased.

—Joanne Chiu contributed to this article.

Write to Caitlin Ostroff at [email protected]