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Don’t Discount Bond Vigilantes, Says Economist Who Named Them

Edward Yardeni predicts bond investors will react negatively to higher inflation.

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Photographer: Christopher Goodney/Bloomberg

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The once-feared bond vigilantes have been quiet lately.  In Wall Street lore, they’re the investors who take matters into their own hands when the government isn’t protecting the currency. If inflation rises, deficits grow, or a country’s creditworthiness is at risk, the bond vigilantes sell bonds en masse, pushing up interest rates sharply and forcing the government to get serious.

The vigilantes were nowhere to be seen on June 9, a day when interest rates went down instead of up. The yield on the 10-year Treasury note fell to 1.48% after having gotten as high as 1.74% at the end of March. That was in spite of economists’ predictions that on June 10, the Bureau of Labor Statistics would report that consumer prices rose 4.7% in the year through May.