According to the veteran economist credited with coining the term in the 1980s, the Bloomberg vigilantes are back in the saddle and riding high again after mostly been on hiatus since the early 1990s.
The huge amount of monetary and fiscal stimulation released during the epidemic has unleashed forces that haven't been seen for a long time, forcing central banks to respond to the policy tightening seen this year, according to Ed Yardeni.
Yardeni, president and chief investment strategist at Yardeni Research Inc., said when the central banks were forced to stop their Great Financial Repression, the bond vigilantes were set loose.
He said that the worst bond selloff in decades is seeing few signs of ending.
The US Treasury yield went up by the most since the March 2020 crash, with poor demand for a two-year note auction triggering renewed selling that pushed key benchmarks higher by more than 20 basis points. The two-year US yields are up more than 3.5 percentage points this year, which would be the biggest annual surge in data since 1976. The UK notes have lost 27% this year.
The Bloomberg Global Aggregate Total Return Index of investment-grade government and corporate bonds dropped for an eighth session, down more than 20% from its peak.
Former Treasury Secretary Lawrence Summers warned in a series of tweets that the UK government's fiscal policy has caused a currency crisis for the pound, which could have global consequences and erode London's status as a global financial center.
Summers, a Harvard University professor and paid contributor to Bloomberg Television, wrote on Twitter that Britain's trade current account deficit underscores the seriousness of its challenges. My guess is that the pound will be less than parity with the dollar and euro.