By Anna Hirtenstein 

U.S. stock futures edged down Tuesday, suggesting markets are taking a breather after a bout of volatility in both shares and bonds.

Futures tied to the S&P 500 slipped 0.5%, pointing to a retreat for the broad market index after it surged on Monday in its best day since June. Futures linked to the Nasdaq-100 dropped 0.6%, signaling declines in technology stocks after the opening bell.

Investors say their focus is squarely on central bank officials for cues on how monetary policy may shift down the road. That will determine their appetite for government bonds and for inflation-adjusted returns. A flood of easy money by the Federal Reserve since the pandemic hit last spring has helped subdue returns on bonds and fueled a rally in stock markets for much of the past year.

This phenomenon seemed to halt in recent weeks: money managers adjusted their portfolios in anticipation of an economic rebound and a potential increase in inflation, prompting a selloff in government bonds. Yields jumped last week as bond prices fell, leading to jitters in stocks. Bond markets have since stabilized, and stocks surged higher on Monday.

"We're just taking a breather after yesterday," said Fahad Kamal, chief investment officer at Kleinwort Hambros.

"The state of the bond market is driving everything," he added. "The central banks continue to be the real pivot in markets right now: as long as they continue to buy enormous amounts of bonds in the market, the upside move [in yields] is capped."

The yield on the 10-year U.S. Treasury bonds slid to 1.434%, from 1.444% on Monday, marking its third straight day of declines. Still, that is sharply higher from this year's closing low on Jan. 4 of 0.915%.

The recent volatility in markets "shows how hostage we are to policy remaining exactly where it is," said Georgina Taylor, a multiasset fund manager at Invesco. "There is no real room for policy tightening to take hold: we still need that to be supportive of the economic recovery."

Investors will be assessing comments by Federal Reserve Gov. Lael Brainard at an event starting at 1 p.m. ET for fresh cues on how the central bank views the moves in bond markets and prospects for higher inflation. On Monday, she didn't address the issues when she spoke at another event. Fed officials have so far suggested the climb in yields reflects expectations for an economic recovery.

"We think that the coming days and weeks will likely be pivotal," and could see central banks taking steps beyond their verbal interventions, said Peter Schaffrik, a global macro strategist at RBC Capital Markets.

Overseas, the pan-continental Stoxx Europe 600 ticked up 0.3%.

The selloff in European sovereign-debt markets also continued to ease. The benchmark German bund yield ticked down to minus 0.344%, after reaching as high as minus 0.216% last week.

In Asia, most major benchmarks finished the day down. China's Shanghai Composite Index and Hong Kong's Hang Seng both fell 1.2%. An official at the People's Bank of China said he was worried about risks emerging from inflated asset prices in international financial markets and the domestic property sector, according to analysts at Deutsche Bank.

South Korea's Kospi Index rose 1%, buoyed by the prospect of a new pandemic relief spending package.

Write to Anna Hirtenstein at


(END) Dow Jones Newswires

March 02, 2021 05:32 ET (10:32 GMT)

Copyright (c) 2021 Dow Jones & Company, Inc.