Bond vigilantes awaken allies in the stock market

Bond vigilantes find 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 concerns in return in trend and the U.S. budget deficit seen surge, vigilantes have {targeted|stormed|floaded fixed income trading floors and seem to be pop up in equity markets too, where they might possibly punish already worn out stocks for policymakers’ and lawmakers’ actions.


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

The saying "bond vigilante" was coined by Yardeni in 1983 to illustrate investors’ bid on high yields to cover for the financial risk of inflation and budget deficits at the time 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 climb 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 oversensitive to rising yields after the past week’s surge, which pulls borrowing costs and could lessen economic earnings and progress, Yardeni explained. That also comes against the backdrop of accumulating government debt.


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