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The S&P 500 dropped 1.6% overnight and is down 2.7% in a week when policymakers were at pains to sound hawkish, even if a peak in rates is near. Federal Reserve officials lifted their 2024 rates projections, forcing investors to dial back bets on cuts next year and driving two-year yields above 5.2%.
The US Consumer Price Index (CPI) for August is due out on Wednesday. Inflation is expected to rise 0.6% month-on-month for August, which would take the year on year rate to 3.6%, according to a Wells Fargo research note.
The yield on benchmark 10-year Treasury notes rose to 4.0885% compared with its U.S. close of 4.078% on Monday. The two-year yield, which rises with traders' expectations of higher Federal Reserve fund rates, touched 4.7682% compared with a U.S. close of 4.758%.
The yen had earlier jumped about 0.5% on the report, gaining even as the dollar rose elsewhere after strong U.S. economic data and a toned down outlook from the European Central Bank.
With the earning rush picking up on Friday, investors also had more reason to be cautious since Thursday's notable stock market laggards, including chip-testing equipment maker Advantest and Nissan Motor, were due to results-driven losses.