Treasuries, U.S. index futures decline on Fed bets

U.S. Treasuries tumbled and equity-index futures extended losses as investors weighed Federal Reserve Chair Jerome Powell’s willingness to embrace bigger rate hikes earlier in the tightening cycle.

U.S. Treasuries tumbled and equity-index futures extended losses as investors weighed Federal Reserve Chair Jerome Powell’s willingness to embrace bigger rate hikes earlier in the tightening cycle.

Contracts on the Nasdaq 100 and S&P 500 indexes dropped at least 0.4 per cent each, signaling that New York equities may head for a third week of declines. Shorter-dated Treasury yields surged. The dollar rose to the highest level since July 2020 amid losses for the British pound with data showing the U.K.’s cost-of-living crisis is hampering consumer spending. 

Even as the Fed and the European Central Bank have made a deeper hawkish tilt in recent days, U.S. equities have remained resilient thanks to what’s developing into another stellar earnings-reporting season. At the same time, traders are mindful of the inevitable risk repricing, especially after Powell outlined his most aggressive approach yet to taming inflation, potentially endorsing two or more half percentage-point rate increases.

“Equities are really torn between these two forces right now and the first one is that earnings are actually pretty good,” Anastasia Amoroso, chief investment strategist at iCapital Securities LLC, said on Bloomberg Television. But “anytime equities rally it seems like the Fed officials are coming in with more and more hawkish talk,” she said.

Powell on Thursday cited minutes from last month’s policy meeting that said many officials had noted “one or more” 50 basis-point hikes could be appropriate to curb the hottest inflation in four decades. Investors are now betting on half-point increases in May, June and possibly July.