Bond vigilantes awaken allies 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 acquiring allies in the stock market.

With inflation fears once again in vogue and the U.S. budget deficit perceived surge, vigilantes have {targeted|stormed|floaded fixed income trading floors and seem to be merge in equity markets too, where they will penalize already dilapidated stocks for policymakers’ and lawmakers’ actions.

 

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

The label "bond vigilante" was coined by Yardeni in 1983 to express investors’ insistence on high yields to cover for the exposure to risk 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 hurting equity prices.

 

Bond yields began to skyrocket on Feb. 2 after U.S. government data confirmed 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 hypersensitive to rising yields after the past week’s upturn, which lifts borrowing costs and could hold back economic earnings and production, Yardeni said. That also comes against the backdrop of accumulating government debt.

 

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