Bond vigilantes awaken counterparts 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 discovering allies in the stock market.

With inflation anxiety back in vogue and the U.S. budget deficit noticed escalate, vigilantes have {targeted|stormed|floaded fixed income trading floors and seem to be surface in equity markets too, where they will punish already ramshackle 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’ insistence on high yields to compensate for the potential risk of inflation and budget deficits during of the Reagan administration. A stock version of a vigilante would seek to effect lawmakers and policymakers by slamming equity rates.


Bond yields began to soar on Feb. 2 after U.S. government data demonstrated 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 became oversensitive to rising yields after the past week’s spike, which elevates borrowing costs and could curb economic earnings and progress, Yardeni proclaimed. That also comes against the backdrop of racking up government debt.


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