Tech Shares Fall as Bond Yields Rise

The moves are the latest shock tied to the sharp rise in Treasury yields. Signs of a recovering economy have led investors to dump government bonds, pushing yields higher. The higher yields mean borrowing costs for businesses and individuals will go up, so investors have been selling pricey tech stocks that look less valuable in a rising rate environment to load up on shares of companies poised to benefit from an economic rebound.

Stock future had started heading lower overnight after the 10-year Treasury yield, a key benchmark for lending costs, ticked up to 1.747%, breaching 1.7% for the first time since January 2020.

“This morning, the markets woke up and decided if the Fed is going to keep policy so loose, they want higher risk premium,” said Michael Matthews, a fixed-income fund manager at Invesco.

A day earlier, the Fed had increased some projections for growth and inflation based on the latest round of stimulus doled out by Congress and the rollout of Covid-19 vaccines.

“It is all about inflation expectations: The fact that we are getting inflation expectations beyond the Fed’s target is spooking bond markets,” added Edward Park, chief investment officer at Brooks Macdonald.

Investors looked to sectors like banks, airlines and energy companies, which could benefit more when social and business activity picks up. Shares of financial stocks in the S&P 500 rose 1.3%, as investors priced in the likelihood that banks could earn more on the loans they issue. Utilities and manufacturers also traded slightly higher.

Tech stocks in the index fell 1.5%.

Also Thursday, the number of Americans applying for first-time unemployment benefits rose to 770,000 in the week ended March 13, up from 725,000 in the week prior. While filings for jobless claims, a proxy for layoffs, has fallen from its peak last year, they remain at historically high levels.

“The thing to watch is the employment numbers, and central banks are all watching that,” said Mr. Matthews. “The Fed and all central banks have decided it is better to run the economy hot, to aid the recovery, to get as low unemployment as they possibly can.”

Bond investors are betting that the Fed will raise interest rates within the next two years, despite data Wednesday that showed most policy makers still expect to maintain ultralow interest rates through 2023. Just seven of 18 Fed officials anticipated lifting rates in 2022 or 2023, up from five in December.

Overseas, the pan-continental Stoxx Europe 600 ticked up 0.2%.

In Asia, most major benchmarks closed higher. China’s Shanghai Composite Index added 0.5%, while Hong Kong’s Hang Seng rallied 1.3%. Australia’s S&P/ASX 200 declined 0.7%.

—Michael Wursthorn contributed to this article.

Write to Caitlin Ostroff at caitlin.ostroff@wsj.com