Bond vigilantes find allies in the stock market

Bond vigilantes find counterparts 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 finding allies in the stock market.

With inflation doubts back in trend and the U.S. budget deficit viewed mounting, vigilantes have {targeted|stormed|floaded fixed income trading floors and seem to be pop up in equity markets too, where they could quite possibly punish already shabby stocks for policymakers’ and lawmakers’ activities.

 

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

The key phrase "bond vigilante" was coined by Yardeni in 1983 to explain investors’ bid on high yields to hedge for the financial risk of inflation and budget deficits for the duration of the Reagan administration. A stock version of a vigilante would seek to put their imprint on lawmakers and policymakers by slashing equity prices.

 

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 possibility 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 pulls borrowing costs and could reduce economic earnings and progress, Yardeni explained. That also comes against the backdrop of accumulating government debt.

 

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