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Bond vigilantes find partners 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 once more in trend and the U.S. budget deficit viewed skyrocketing, vigilantes have {targeted|stormed|floaded fixed income trading floors and seem to be appear in equity markets too, where they might punish already worn out stocks for policymakers’ and lawmakers’ behaviours.


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

The label "bond vigilante" was coined by Yardeni in 1983 to express investors’ bid on high yields to compensate for the opportunity of inflation and budget deficits at the time of the Reagan administration. A stock version of a vigilante would seek to sway lawmakers and policymakers by slamming equity price levels.


Bond yields began to rise on Feb. 2 after U.S. government data showed the biggest wage gains since 2009, convincing investors of the growing danger 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 upturn, which elevates borrowing costs and could suppress economic earnings and growth, Yardeni says. That also comes against the backdrop of racking up government debt.


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