U.S. futures erase losses; bond selloff eases

American index futures turned higher on Friday and a selloff in sovereign bonds eased as policy makers in the U.S. and Europe pushed back against feverish rate-hike speculation stoked by red-hot inflation.

American index futures turned higher on Friday and a selloff in sovereign bonds eased as policy makers in the U.S. and Europe pushed back against feverish rate-hike speculation stoked by red-hot inflation.

Contracts on the S&P 500 and Nasdaq 100 reversed early losses, signaling a respite for the benchmarks after Thursday’s steep stock declines amid bets on faster Federal Reserve tightening. The 10-year Treasury yield fell about three basis points to hover around the 2 per cent level. The two-year yield dipped four points after jumping the most since 2009 on Thursday. Bonds across Europe were mixed, with Germany’s 10-year yield dropping three basis points. The dollar was steady.

The Stoxx Europe 600 index dropped, though the European benchmark remains on track for its first weekly advance this year. Technology and real-estate shares led the decline. Carmakers outperformed after strong results from Mercedes-Benz AG, while BMW AG gained after getting the nod to increase its stake in a Chinese joint venture.

Bonds and stocks were pummeled Thursday by the surprise jump in U.S. inflation that stirred hawkish comments from St. Louis Fed Chair James Bullard, who said he supports raising rates by a full percentage point by the start of July, and may consider a move in between scheduled policy reviews. Other Fed officials, though, are in no rush to raise rates prior to their meeting next month, nor does a 50 basis points March move appear likely yet.

“There is probably some disagreement within the FOMC on whether inflation can be reduced quickly by aggressive policy that signals an unwavering commitment to get inflation back to target,” Steven Englander, global head of G-10 FX research at Standard Chartered Bank, wrote in a note. Englander expects quarter-point Fed hikes in March, May, June and July, but added “there is a case for even more front-loading.”