Bond vigilantes find allies in the stock market

Bond vigilantes awaken partners 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 discovering allies in the stock market.

With inflation doubts back again in trend and the U.S. budget deficit perceived increasing rapidly, vigilantes have {targeted|stormed|floaded fixed income trading floors and seem to be merge in equity markets too, where they may very well punish already ramshackle stocks for policymakers’ and lawmakers’ activities.


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

The terminology "bond vigilante" was coined by Yardeni in 1983 to refer to investors’ insistence on high yields to hedge for the potential risk of inflation and budget deficits during of the Reagan administration. A stock version of a vigilante would seek to influence lawmakers and policymakers by slashing equity values.


Bond yields began to skyrocket on Feb. 2 after U.S. government data revealed the biggest wage gains since 2009, convincing investors of the growing danger 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 surge, which elevates borrowing costs and could hold back economic earnings and production, Yardeni suggested. That also comes against the backdrop of building up government debt.


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