Bond Yields Hit Two-Year High as Stock Futures Fall

U.S. stock futures fell, led by large technology stocks, as government bond yields rose to a two-year high, a sign that investors are rotating out of stocks that do well in a low-interest-rate environment.

Futures for the S&P 500 fell 1.3% Tuesday, after U.S. markets were shut Monday for a public holiday. Contracts for the tech-focused Nasdaq-100 declined 2% and futures for the Dow Jones Industrial Average fell 0.9%.

Technology stocks have come under pressure in January as government-bond yields have risen. On Tuesday, the yield on the benchmark 10-year Treasury note ticked up to 1.834%—its highest level in two years—from 1.771% Friday. Yields rise when prices fall.

Investors expect a tight labor market and elevated inflation will prompt the Federal Reserve to carry out multiple rate increases this year. The yield on the two-year government bond rose to 1.036%—the highest level since February 2020—from 0.965% Friday, a sign of expectations for higher rates. Higher yields can reduce the appeal of the future earnings promised by many tech stocks.

Investors in interest-rate futures markets are betting on four to five interest rate hikes this year, according to CME Group.

“Markets are still trying to find a level for rate hikes. It was only in October the market was expecting one rate hike for 2022 and now it’s expecting four,” said Edward Park, chief investment officer at U.K. investment firm Brooks Macdonald. “That’s reflecting the level of uncertainty we have in the market right now about the path of Fed policy.”

A slew of financial companies are slated to post earnings ahead of the market open, most notably Goldman Sachs, plusBank of New York Mellon,PNC Financial ServicesandCharles Schwab. Profits have begun toebb at some big banksthat benefited from the tumultuous pandemic economy.

Overseas, the pan-continental Stoxx Europe 600 fell 1.4%, with the biggest losses in the technology and travel and leisure sectors.

Major indexes in Asia broadly closed lower, although China’s Shanghai Composite bucked the trend, adding 0.8%. South Korea’s Kospi fell 0.9%, Japan’s Nikkei 225 edged down 0.3% and Hong Kong’s Hang Seng declined 0.4%.

Brent crude futures, the benchmark in global oil markets, rose 1.77% to $87.58 a barrel.