A Treasury selloff resumed on Tuesday as investors increased their bets on monetary tightening by the Federal Reserve, with markets pricing in four interest rate hikes from the U.S. central bank for the first time this year.

Treasury yields hit a two-year high as traders returned from the long weekend in the United States, dragging stock markets lower.

The yield on the 10-year U.S. Treasury, which rises as the price of the global government debt benchmark falls, climbed 0.08 percentage points to 1.85%, the rate outlook higher on cash deposits and sustained inflation making the security’s fixed interest payments less attractive.

Meanwhile, the yield on the two-year Treasury bill, which closely tracks interest rate expectations, rose 0.06 percentage points to 1.03%, a level not seen since February. 2020.

“There is speculation about the Fed increasing aggressiveness,” said James Athey, portfolio manager at Aberdeen Standard Investments.

That mood, he said, was “started” by JPMorgan Chase chief executive Jamie Dimon, “offhandedly suggesting last week that [policymakers] could increase six or seven times this year, and the movement has gained momentum”.

The U.S. central bank has kept its key policy rate close to zero since March 2020, but interest rate futures show traders expect it to rise above 1% by December.

The Bank of Japan raised its inflation forecast on Tuesday, giving further boost to higher yields. Typically the most dovish of the world’s major central banks, the BoJ said the risks around its forecast were now “balanced” rather than “downside biased”, a phrase it has used since 2014.

The change in language “allows markets to envision a world where the BoJ takes its foot off the monetary easing accelerator,” said ING analyst Padhraic Garvey.

Wall Street’s Nasdaq Composite stock gauge, which is stacked with tech groups and other highly rated growth companies, fell 1.5%. The broader S&P 500 stock index fell 1.4%.

Along with the prospect of rising interest rates, which can quickly affect equity valuations when the rate of change in borrowing costs is expected to be rapid, investors are grappling with slowing corporate earnings growth. after a rebound last year from the shocks of 2020.

Analysts polled by data provider FactSet expect S&P 500-listed companies to post overall profit growth of 22% for the last quarter of December, year-on-year, compared to 40% in the previous three months .

Goldman Sachs shares plunged 8% on Tuesday, heading for their biggest daily decline since June 2020, after the investment bank’s quarterly profits fell short of analysts’ forecasts.

Stock markets initially rose after data last week showed US inflation hit an annual rate of 7% in December, but also moderated month on month. other.

But fresh fears of prolonged price hikes caused by supply chain bottlenecks emerged after authorities in China, a major exporter of goods, responded to the spread of the Omicron coronavirus variant with new travel locks and controls.

“It’s now starting to raise concerns about the supply chain crisis,” said Randeep Somel, portfolio manager at M&G.

In Europe, the regional Stoxx 600 equity index fell 0.9%, with its technology sub-index falling 1.8%.

The yield on the 10-year German Bund, a benchmark for borrowing costs for European businesses and households, traded minus 0.01% on Tuesday as it remained close to climbing above zero for the first time since 2019.

Russia’s main stock exchange lost 6.5% on Tuesday, putting the Moex on course for its worst day since the start of 2020. A broader FTSE index of emerging market stocks was down 1%.

In Asia, Hong Kong’s Hang Seng stock index fell 0.4% and Tokyo’s Nikkei closed down 0.3%.

Brent, the oil benchmark, rose 1.1% to $87.45 a barrel, hitting its highest level since 2014.

The dollar index, which measures the US currency against six others, edged up 0.4%.