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Dow futures fall more than 100 points as bond yields climb again

A nervous return for investors.

Dow futures dropped more than 100 points early Tuesday, as traders returned from the long U.S. holiday weekend to face fresh selling pressure for U.S. stocks.

A renewed push higher for U.S. bond yields, with the dollar also higher, was being blamed for some of the nervousness among investors. Climbing bond yields was the spark that set off the market meltdown earlier this month.

What are the main benchmarks doing?

Extending losses, Dow Jones Industrial Average futures YMH8, -0.80% shed 188 points, or 0.7%, to 25,048, while S&P 500 futures ESH8, -0.69% gave up 19.25 points, or 0.7%, to 2,715.25. Nasdaq-100 futures NQH8, -0.76% tumbled 52 points, or 0.8%, to 6,732.75.

The Dow and S&P 500 logged modest gains on Friday to manage a sixth-straight advance; the Nasdaq slipped slightly.

What’s driving markets?

Stocks fell as a huge wave of U.S. Treasury issuance this week was depressing prices and lifting yields. Higher yields could increase the cost of corporate borrowing, a negative for stocks. Higher yields may also position bonds more attractively than stocks to investors. The Treasury Department will auction $28 billion of 2-year notes, $35 billion of 5-year notes and $29 billion of 7-year notes this week, with the 2-year auction hitting Tuesday.

The yield on the benchmark 10-year U.S. Treasury TMUBMUSD10Y, +1.14% note climbed 3 basis points to 2.909%. Yields move inversely to price. That yield resumed a move to top 2.94% last Thursday, a four-year high, though stock indexes held their ground and managed strong weekly gains during that time. The 2-year Treasury yield last week notched a 9-year high.

In early February, a move above 2.8% for the 10-year triggered a sharp pullback for stocks. Bond investors have been uneasy after recent stronger inflation readings lifted expectations for potential more-aggressive interest-rate hikes than bond buyers expected.

No data is on the calendar for Tuesday, but Wednesday’s release of minutes from the Federal Reserve’s January policy meeting, the last chaired by Janet Yellen, will be combed for clues to the central bank’s thinking on interest rates. Several Fed officials are also scheduled to speak this week, with Philadelphia Federal Reserve Bank President Patrick Harker and Minneapolis Federal Reserve Bank President Neel Kashkari due to make appearances Wednesday.

Check out: The stock market’s new ‘wall of worry’ is built on inflation and rate fears

What are strategists saying?

“I think it goes back to the same arguments. Higher yields offer safer alternative to stocks, which are pretty richly priced. More technically, we’ve pulled back about 1/2 to 2/3 of those losses from the high after opportunistic dip buying in correction territory,” said Jasper Lawler, head of research at London Capital Group, who added that “confidence is starting to fade” now that stocks have made up for some lost territory.

Stock markets are now “trading near key resistance levels, and a break above them will require a positive catalyst which looks hard to find at this time,” said Konstantinos Anthis, head of research at ADS Securities.

“As such, a bearish leg lower seems the next step for equities at least until investors get some insight on the [Fed] minutes,” Anthis said in a note to clients.

What stocks may be active?

Shares of Rite Aid Corp. RAD, +2.40% surged 23% in premarket action after grocer Albertsons Cos. said it would buy the rest of the drugstore chain that Walgreens Boots Alliance Inc. WBA, +1.63% isn’t buying.

U.S.-listed shares of HSBC Holdings PLC HSBC, +0.15% fell 3% in premarket after the bank’s profit missed forecasts due to the collapse of two high-profile borrowers.

Shares of NXP Semiconductors NV NXPI, +1.35% rose more than 3% after a report Qualcomm Inc. QCOM, -0.66% will up its bid for the chip maker to around $44 billion, as it tries to win shareholder support for the acquisition, The Wall Street Journal reported Tuesday, citing sources.

What are other assets doing?

After a weaker session on Monday, European stocks SXXP, -0.03% continued to struggle, while in Asia, Japan’s Nikkei 225 index NIK, -1.01% and the Hong Kong Hang Seng Index HSI, -0.78% each fell around 1%. Several bourses in Asia remain closed for the Lunar New Year holiday.