Bond vigilantes awaken allies in the stock market

Bond vigilantes find counterparts in the stock market


A bond vigilante is a bond market investor who protests monetary or fiscal policies he considers inflationary by selling bonds, thus increasing yields. … As a result, bond prices fall and yields rise, which increases the net cost of borrowing.


Bond vigilantes could be acquiring allies in the stock market.

With inflation doubts all over again in trend and the U.S. budget deficit watched spiraling, vigilantes have {targeted|stormed|floaded fixed income trading floors and seem to be pop up in equity markets too, where they possibly will penalize already battered stocks for policymakers’ and lawmakers’ actions.


"The stock market is feeling the bond market’s pain. Absolutely, no doubt – we have stock vigilantes too," pointed out Ed Yardeni,

The term "bond vigilante" was coined by Yardeni in 1983 to explain investors’ insistence on high yields to cover for the dangers of inflation and budget deficits at the time of the Reagan administration. A stock version of a vigilante would seek to sway lawmakers and policymakers by cutting equity prices.


Bond yields began to rise on Feb. 2 after U.S. government data exhibited the biggest wage gains since 2009, convincing investors of the growing threat of inflation, long tame since the 2007-2009 recession.


U.S. stock investors have now turned hypersensitive to rising yields after the past week’s upturn, which lifts borrowing costs and could hold back economic earnings and production, Yardeni stated. That also comes against the backdrop of accumulating government debt.


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