Inflation Worries Send Longer Treasuries Soaring

This insightful monthly market commentary will help you look beyond the headlines to better understand what is driving the current market trends that could impact your credit union’s investment portfolio.


February was another reminder of how quickly things can evolve in financial markets, and the magnitude and velocity of the rise in bond yields was painful for many market participants. If we take a step back, it was nearly one year ago when the first COVID-driven lockdown orders were initiated, which was a significant disinflationary event culminating with a record-shattering -31.4% GDP decline in the second quarter (annualized). With massive monetary and fiscal support, a reflation trade took hold of risk markets, and the S&P 500 generated a 68% return from the March 23, 2020 trough through the end of January. In the early weeks of 2021, reflation has transitioned to outright inflation worries, which sent yields on 3-year and longer Treasuries soaring higher in a relatively short time frame.

January At-A-Glance

  • A combination of factors, including inflation worries, contributed to a sharp and sudden steepening of the yield curve in February.
  • Recent COVID-19 trends and economic data have improved, fueling general market optimism.
  • Some feel that the bond market is testing the Fed’s resolve, and to this point, Jerome Powell and his colleagues are holding firm to a more conservative (and dovish) outlook.

The catalysts for these inflation worries came from multiple fronts. As noted in last month’s commentary, there had been notable improvement in COVID-19 cases and hospitalizations as January progressed, and that trend continued throughout February. Adding to the more hopeful outlook was a Wall Street Journal op-ed by Johns Hopkins professor Dr. Marty Makary on February 18 that suggested herd immunity might be reached as early as April. In coming up with this prediction, Dr. Makary said that testing has only been capturing 10-25% of infections, inferring that “about 55%” of Americans could already have natural immunity. Based on the current trajectory of cases and projections for vaccine distribution, he opined that “COVID will be mostly gone by April.” This is clearly just Dr. Makary’s informed opinion, but it only fed the inflation narrative more.

Read more about the latest economic data and overall market trends here.

This market overview is provided by ALM First Financial Advisors, LLC, the investment advisor for Trust for Credit Unions. Read more from ALM First about the latest economic data releases and overall market trends at

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March 5, 2021

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