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Bond vigilantes awaken allies in the stock market

Bond vigilantes find counterparts in the stock market

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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.

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Bond vigilantes could be acquiring allies in the stock market.



With inflation anxiety in return in trend and the U.S. budget deficit viewed increasing rapidly, vigilantes have {targeted|stormed|floaded fixed income trading floors and seem to be spring up in equity markets too, where they can certainly punish already crumbling stocks for policymakers’ and lawmakers’ activities.

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

The key phrase "bond vigilante" was coined by Yardeni in 1983 to describe investors’ insistence on high yields to cover for the real danger of inflation and budget deficits at the period of the Reagan administration. A stock version of a vigilante would seek to impact lawmakers and policymakers by hurting equity price levels.

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Bond yields began to climb on Feb. 2 after U.S. government data proved the biggest wage gains since 2009, convincing investors of the growing hazard of inflation, long tame since the 2007-2009 recession.



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U.S. stock investors have now became oversensitive to rising yields after the past week’s upturn, which elevates borrowing costs and could suppress economic earnings and production, Yardeni believed. That also comes against the backdrop of accumulating government debt.

 

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