Bond vigilantes find 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 anxieties once more in trend and the U.S. budget deficit watched shooting up, vigilantes have {targeted|stormed|floaded fixed income trading floors and seem to be crop up in equity markets too, where they might probably punish already rickety stocks for policymakers’ and lawmakers’ actions.

 

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

The label "bond vigilante" was coined by Yardeni in 1983 to illustrate investors’ pursuit after high yields to compensate for the dangers of inflation and budget deficits at the time of the Reagan administration. A stock version of a vigilante would seek to effect lawmakers and policymakers by cutting equity values.

 

Bond yields began to grow on Feb. 2 after U.S. government data exhibited 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 became vulnerable to rising yields after the past week’s upturn, which pulls borrowing costs and could stop economic earnings and production, Yardeni alleged. That also comes against the backdrop of accumulating government debt.

 

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