Bond vigilantes find counterparts in the stock market

Bond vigilantes awaken 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 anxiety back in trend and the U.S. budget deficit noticed going through the roof, vigilantes have {targeted|stormed|floaded fixed income trading floors and seem to be arise in equity markets too, where they properly penalize already falling apart stocks for policymakers’ and lawmakers’ actions.


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

The nickname "bond vigilante" was coined by Yardeni in 1983 to refer to investors’ appeal to high yields to cover for the opportunity of inflation and budget deficits during of the Reagan administration. A stock version of a vigilante would seek to influence 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 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 elevates borrowing costs and could reduce economic earnings and production, Yardeni stated. That also comes against the backdrop of building up government debt.


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