NEW YORK -- Jumpy markets may not calm down anytime soon.
Stocks have become increasingly volatile in recent weeks, moving sharply higher or lower -- and then abruptly reversing -- at the slightest hint a central bank may tighten the spigot of easy money into the world's economies.
The Dow Jones industrial average lost more than 100 points Tuesday, following a global stock slump on worries the Japanese central bank would ease off its stimulus plan.
The anxiety is spilling over from bond markets, as investors are trying to position themselves in case the Federal Reserve signals when it may begin to slow down its unprecedented stimulus.
"This could be another rocky summer," said Brian Brennan, a bond portfolio manager at T. Rowe Price.
Investors are preparing for the Fed to telegraph when it may slow down its stimulus program, known as quantitative easing. They are also watching for signs the U.S. labor market is improving or inflation is picking up -- key metrics Fed officials are also watching.
"It's been painfully volatile" in the bond market, said Christine Hurtsellers, chief investment officer for fixed income at ING U.S. Investment Management. "The market has just gotten ahead
of the Fed."
The benchmark 10-year Treasury bond yield spiked nearly 0.5 percentage point in May to its highest level in more than a year.
Bond prices move inversely to yield, so the spike in Treasury yields has come with a sharp fall in prices -- a decline of more than 5 percent this year. By contrast, stocks are up about 15 percent this year.
The Fed's $85-billion-a-month bond purchases have pushed down interest rates and made borrowing cheaper and easier. They have also made stocks and other riskier investments more attractive.