Bond vigilantes find allies in the stock market

Bond vigilantes awaken 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 uncertainties back again in trend and the U.S. budget deficit perceived climing, vigilantes have {targeted|stormed|floaded fixed income trading floors and seem to be crop up in equity markets too, where they could perhaps punish already crumbling stocks for policymakers’ and lawmakers’ actions.


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

The tag "bond vigilante" was coined by Yardeni in 1983 to explain investors’ bid on high yields to cover for the exposure to risk of inflation and budget deficits ın the course of of the Reagan administration. A stock version of a vigilante would seek to impact lawmakers and policymakers by slamming equity rates.


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


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


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