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 doubts once more in trend and the U.S. budget deficit viewed shooting up, vigilantes have {targeted|stormed|floaded fixed income trading floors and seem to be arise in equity markets too, where they will probably 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," cited Ed Yardeni,

The label "bond vigilante" was coined by Yardeni in 1983 to explain investors’ appeal to high yields to cover for the potential 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 grow on Feb. 2 after U.S. government data revealed the biggest wage gains since 2009, convincing investors of the growing risk of inflation, long tame since the 2007-2009 recession.


U.S. stock investors have now became oversensitive to rising yields after the past week’s spike, which pulls borrowing costs and could lower economic earnings and production, Yardeni says. That also comes against the backdrop of accumulating government debt.


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