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


For years, some members of our staff have lobbied for the flexibility to work from home. I have resisted because I believe a key success factor for our credit union is our ability to relate to one another. Call me old-fashioned, but I think it is valuable for employees to build in-person relationships that foster stronger teamwork.

During the coronavirus epidemic, we adjusted our office to allow employees to perform some credit union work at home. The exigency of the situation called for unconventional adjustments. As a result, the pandemic has prompted more calls for workplace optionality.

I can feel the fingers wagging as some of my colleagues tell me, I told you so. We can work from home and be just as productive. Smith, your stodgy ways were stifling and unnecessary.

Not so fast.

I will admit when I’m wrong. Often, I am. In this instance, I think the jury is still out on the matter. I believe there are other factors to consider before we pronounce the end of the traditional workplace.

First, we should realize all workplaces are not the same. Work from home might be a viable status quo for some credit unions, but the practice should be put in the context of a larger strategic plan. Credit union leaders should ponder how a new work pattern affects their ability to serve members.

Second, relationships matter for some credit union cultures. It does for our credit union. We commonly refer to ourselves as a family. I can’t imagine not seeing my family for an extended period. A relationship means I can relate to you. So, when stress arises in the office, I have a basis of knowledge about you that helps me understand your point of reference and how you handle tension.

Finally, I want to spend more line space on this point. We, as leaders, should be wary of the unintended consequences of our decisions. I believe we have a particularized duty to provide equal opportunities for all our employees. This is the crux of equity and inclusion ensuring classes of people are not overlooked.

Let’s start with the basic notion that all employees want to be successful. Success is often measured in promotions, project leadership, and recognition for one’s craft. To be successful, one needs to be known. After all, a CEO who does not know an employee is less likely to consider that person for an advancement.

Now, this might sound old-fashioned. Early in my career, I sought to be recognized. I wanted the CEO to know who I was. I would be meticulous about my attire. I would arrive early and stay late at work. I relished the moments when we’d pass in the hallway and had a brief conversation. I figured altogether I was building a case that I would be ready when the opportunity for leadership would arrive.

Now consider an environment where the management of the credit union loses personal touch with the people who work for the credit union. The watercooler conversations are not happening. No more bumping into one another in the hallway or parking lot. Employees are reduced to a Zoom square on a monitor. Something feels lost to me.

If we look at this environment and ponder who is most likely to be disenfranchised by virtual detachments, it is likely the marginalized staff. These are the folks who gain from the impromptu hallway chats. These employees lose the opportunity to gain confidence by presenting before their colleagues in the conference room. These colleagues miss the subtle social cues and nonverbal signals one gets from proximity.

My fear is a work-from-home environment takes something away from members of the team who need a little grooming to thrive. That was once me early in my career an inexperienced, skinny kid from a small North Carolina town. I had the advantage of growing a career among supportive colleagues. I made plenty of mistakes. I learned a lot from guidance in the moment.

I admit maybe there can be a balance between work from home and being completely embedded in an office. I suspect we will have to learn how to manage both worlds. As we do, let’s be mindful to not injure the careers of our folks by isolating them from their credit union colleagues.

Maurice Smith is the CEO of Local Government Federal Credit Union and Civic Federal Credit Union. Both credit unions are member-owned cooperatives serving the financial needs of employees, appointed officials, elected officeholders, and volunteers of local governments in North Carolina. Smith celebrates 41 years in the credit union movement.

Smith received his B.S. in Business Administration from the University of North Carolina at Wilmington and earned a Juris Doctor from the North Carolina Central University School of Law. Smith is licensed to practice law in North Carolina, the United States Supreme Court, and the District of Columbia. Smith is also a North Carolina Certified Superior Court Mediator and a CUNA Certified Credit Union Executive.

March 5, 2021

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