Bond markets took centre stage in February with longer term bond yields moving sharply higher reflecting concerns about inflation. While central banks are determined to anchor cash rates at very low levels for several years, longer term bonds are much more sensitive to inflationary expectations which has resulted in a steepening of yield curves. Bond yields have now returned roughly to pre-pandemic levels with US 10-year bonds up 37bp to finish at 1.4% while in Australia the rise was more significant with 10-year bonds 81bp higher to close the month at 1.9%. This took the gloss off an otherwise healthy equity market late in the month, as investors repriced stocks with long term earnings growth profiles. This was particularly felt in the technology heavy NASDAQ which underperformed the 2.8% advance of the broader S&P500. The Australian market followed the US lead advancing 1.5%, buoyed by strength in the resource sector. Other exchanges posted healthy gains with Japan up 4.7% and Europe 3% higher. The AUD was firmer against the USD finishing at 78.3c and continues to be underpinned by the strength of the Australian economy and firm iron ore prices and seems destined to push though the 80c barrier fairly soon.