Bond vigilantes awaken partners in the stock market

Bond vigilantes awaken 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 fears once more in vogue and the U.S. budget deficit watched escalate, vigilantes have {targeted|stormed|floaded fixed income trading floors and seem to be merge in equity markets too, where they can easily punish already falling apart stocks for policymakers’ and lawmakers’ activities.

 

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

The label "bond vigilante" was coined by Yardeni in 1983 to describe investors’ pursuit after high yields to hedge for the risk of inflation and budget deficits ın the course of of the Reagan administration. A stock version of a vigilante would seek to influence lawmakers and policymakers by hurting equity values.

 

Bond yields began to increase on Feb. 2 after U.S. government data proved 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 turned hypersensitive to rising yields after the past week’s spike, which lifts borrowing costs and could reduce economic earnings and progress, Yardeni suggested. That also comes against the backdrop of accumulating government debt.

 

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