Bond vigilantes awaken partners 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 getting allies in the stock market.

With inflation doubts all over again in trend and the U.S. budget deficit viewed shooting up, vigilantes have {targeted|stormed|floaded fixed income trading floors and seem to be merge in equity markets too, where they may likely penalize already rickety 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 express investors’ insistence on high yields to cover for the risk of inflation and budget deficits at the period of the Reagan administration. A stock version of a vigilante would seek to effect lawmakers and policymakers by hurting equity values.


Bond yields began to climb on Feb. 2 after U.S. government data showed 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 turned hypersensitive to rising yields after the past week’s spike, which lifts borrowing costs and could lessen economic earnings and production, Yardeni said. That also comes against the backdrop of racking up government debt.


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