Bond vigilantes find partners 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 acquiring allies in the stock market.

With inflation doubts back in trend and the U.S. budget deficit seen going through the roof, vigilantes have {targeted|stormed|floaded fixed income trading floors and seem to be crop up in equity markets too, where they may possibly penalize already battered stocks for policymakers’ and lawmakers’ behaviours.

 

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

The tag “bond vigilante” was coined by Yardeni in 1983 to express investors’ appeal to high yields to compensate for the possibilities of inflation and budget deficits at the time of the Reagan administration. A stock version of a vigilante would seek to put their imprint on lawmakers and policymakers by slamming equity rates.

 

Bond yields began to increase 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 hypersensitive to rising yields after the past week’s upturn, which pulls borrowing costs and could stop economic earnings and production, Yardeni stated. That also comes against the backdrop of building up government debt.

 

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