Atlas Macro

Markets

Bond Vigilantes

Bond investors who sell government bonds, pushing up borrowing costs, in protest at policies they see as inflationary or fiscally irresponsible. The term was coined by economist Ed Yardeni in the 1980s.

Key points

  • Their influence shows up as rising long-term yields and term premiums.
  • Strongest when a government needs to borrow heavily and its plans lack credibility.
  • Can force governments to change course.

Example

If a government announces large unfunded tax cuts and its 10-year yield jumps a percentage point in days, commentators say the bond vigilantes are back.

In history

In the early 1990s, Bill Clinton's adviser James Carville said he wanted to be reincarnated as the bond market because "you can intimidate everybody". In September 2022 a gilt sell-off after the UK mini-budget forced the government to reverse most of its tax cuts.

Related terms