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Investors fear Fed policy error, Bank of Japan on deck, and China's Treasury holdings rise to six-month high. Here are some of the things people in markets are talking about.

The Feared Flattener

The shrinking spread between yields on short and longer-term U.S. debt is front-and-center in markets. The bond market is signaling the Federal Reserve may be committing a policy error by continuing to raise its policy rate in the face of below-target—and decelerating—inflation. The divide between monetary policymakers and fixed-income markets suggests traders are trying to dissuade the central bank from following through on its tightening plans.

Exit Strategy?

The Bank of Japan is slated to deliver its interest rate decision on Friday, with economists expecting the central bank to keep its policy rate and 10-year yield target unchanged at -0.1 and 0 percent, respectively. What may change, however, is how many bonds the Bank of Japan aims to purchase per year after Governor Haruhiko Kuroda admitted that the pace of purchases has fallen meaningfully shy of its annual target. The governor will hold a press conference at 3:30 p.m. Tokyo time. Shares of Japanese exporters struggled Thursday and could be in for a rough time Friday if the Bank of Japan makes any reference to an exit strategy from its unprecedented unconventional easing program.

$1.09 Trillion

In April, China's holdings of U.S. Treasuries rose to their highest level since October, the third consecutive monthly increase. Roughly $1.09 trillion in American debt is owned by the Chinese. Earlier this month, reports surfaced that the world's second largest economy was ready to add to its hoard of Treasuries as its currency stabilized. China's central bank declined to follow the Fed in hiking rates on Thursday, a switch from the last time Janet Yellen and her counterparts delivered an increase in March.

Tech Difficulties

The technology-centric selloff is back on. Benchmark U.S. equity indexes declined Thursday, with mega-cap tech names leading the way down. Oil prices continued to retreat with West Texas Intermediate futures falling as low as $44.22 per barrel. Shares of social media company Snap Inc. briefly touched their March IPO price before rebounding on heavy volume.

Futures Up

Despite the retreat in U.S. risk assets, the Japanese yen was the worst-performing G10 currency Thursday. Nikkei 225 and S&P/ASX 200 futures are in positive territory as of 5:30 a.m. Tokyo time after both indexes gave back ground the prior session. Asia Pacific stocks stumbled Thursday, with particularly poor showings from energy companies.

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