Bond vigilantes find counterparts in the stock market

Bond vigilantes find allies 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 worries in return in vogue and the U.S. budget deficit watched spiraling, vigilantes have {targeted|stormed|floaded fixed income trading floors and seem to be spring up in equity markets too, where they might possibly punish already ramshackle stocks for policymakers’ and lawmakers’ behaviours.


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

The tag "bond vigilante" was coined by Yardeni in 1983 to explain investors’ pursuit after high yields to cover for the risk of inflation and budget deficits for the duration of the Reagan administration. A stock version of a vigilante would seek to influence lawmakers and policymakers by slamming equity prices.


Bond yields began to rise on Feb. 2 after U.S. government data proved 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 lifts borrowing costs and could reduce economic earnings and growth, Yardeni reported. That also comes against the backdrop of building up government debt.


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