Treasury Yields Top 3%, Stock Futures Rise Ahead of Fed Meeting

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Stock futures pointed to muted gains for major indexes, while the worst bond rout in decades continued, as investors geared up for the Federal Reserve’s policy decision and a batch of earnings.

Futures for the S&P 500 ticked up 0.2%. The benchmark stocks gauge rose 0.6% Monday, its third gain in four trading days. Technology-focused Nasdaq-100 futures ticked up 0.1% Tuesday. Futures for the Dow Jones Industrial Average added 0.2%.

The yield on 10-year Treasury notes rose to 3.008% from 2.995% Monday, when it surpassed 3% for the first time since 2018 before slipping back. Yields, which move inversely to bond prices and are a reference for borrowing costs throughout the economy, have shot up in anticipation of higher interest rates.

They have also dragged up government borrowing costs globally. The yield on 10-year German government bonds, the benchmark in Europe, surpassed 1% Tuesday for the first time since 2015, before slipping back to 0.979%.

Overseas stock markets broadly rose. The Stoxx Europe 600 gained 0.7%, led by shares of banks and oil-and-gas companies on a busy day for earnings in the region.

BP shares rose 2.5% after the oil producer reported underlying profit of $6.2 billion, when stripping out a pretax accounting charge related to its decision to exit its Russia holdings. BNP Paribas posted a jump in earnings, sending shares of the French lender 3.4% higher. Budget airline Wizz Air added 2.6% after saying passenger numbers rose from a year before in April.

Sweden’s OMX Stockholm All-Share steadied, edging up 0.6%. On Monday, the market was among the worst affected by a flash crash in European shares sparked by an erroneous sale by Citigroup.

Mainland Chinese markets were closed for a public holiday. Hong Kong’s Hang Seng edged up 0.1%.

All eyes are on the Fed’s next steps as the central bank tries to tap the brakes on the fastest pace of inflation in decades. Rising rates have combined with coronavirus shutdowns in China and the war in Ukraine to send jitters through stock markets this year.

Rate-setting officials will gather Tuesday for a two-day policy meeting. At its conclusion Wednesday, the Fed is expected to raise interest rates by a half percentage point, the first such increase in 22 years and following on from a quarter-point rise in March.

Investors will also seek details from Chairman Jerome Powell on the central bank’s plans to reduce its bond holdings. Officials have recently indicated that they will allow $95 billion in securities to mature every month, unwinding another form of stimulus lavished on markets during the pandemic.

“It appears that the war in Ukraine hasn’t derailed the Fed in the slightest,” said Gregory Perdon, co-chief investment officer at Arbuthnot Latham. Financial conditions have already tightened significantly, Mr. Perdon added, pointing to a strengthening dollar, the increase in Treasury yields and rising mortgage rates.

All eyes are on the Federal Reserve’s next steps.

Photo: BRENDAN MCDERMID/REUTERS

Earnings season continues apace. Companies due to file earnings before the opening bell include Pfizer, KKR, S&P Global and Biogen. Airbnb, Starbucks, Lyft and American International Group are on the block after markets close.

Broadly positive corporate reports have failed to steady the market in recent weeks. Earnings growth is in line with historical norms at about 11% annually, according to Deutsche Bank analysts, while margins have remained near record levels in spite of rising input prices.

In commodities, Brent-crude futures prices slipped 0.6% to $106.99 a barrel. Traders are awaiting a meeting of ministers from OPEC members and their allies including Russia on Thursday, and also monitoring shutdowns in China that are curbing fuel demand.

A European Union proposal to ban Russian crude oil by the end of the year is due to be circulated to member states Tuesday.

Federal Reserve Chairman Jerome Powell has indicated that the central bank is likely to raise interest rates by a half percentage point at its meeting. Photo: Samuel Corum/Getty Images

Write to Joe Wallace at joe.wallace@wsj.com

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