Everyone’s excited about the prospects for a sharp economic recovery as increasing numbers of Americans get their Covid-19 vaccinations. Well, almost everyone -- holders of U.S. Treasuries have serious reasons for concern. The debt is capping its worst quarter since 1980, when former Federal Reserve Chair Paul Volcker was trying to break inflation by sending rates soaring. And with the economy returning to normal, investors are bracing for higher yields and even more losses to come.

The Bloomberg Barclays U.S. Treasury Index sank 4.25% in the three months to March 31, as the bonds came under pressure after the Democrats took the Senate in January and paved the way for a surprisingly large $1.9 trillion spending program championed by President Joe Biden. Add the U.S.’s accelerated vaccine rollout and the Fed’s reluctance to push back against higher yields, and you get a selloff that drove the 10-year rate to the highest since January 2020.

Traders and investors see this dynamic extending into the second quarter -- and the rest of the year -- as the Biden administration seeks yet another multi-trillion dollar spending plan and further speeds vaccine deployment. However, the pace of the losses should be more contained, even as the specter of volatility looms.

In the first quarter, the market was “firing off on all cylinders when it came to the trajectory toward higher yields, because you had a pathway toward improving fundamentals,” Subareas Rajappa, head of U.S. rates strategy at Societe Generale, said. “I definitely see the case for a steady rise in yields from here on.”