Treasury yields (^TNX, ^TYX, ^FVX) pull back after the latest economic data supporting inflation cooling. Yardeni Research president Ed Yardeni tells Julie Hyman and Josh Lipton about the risk of bond vigilantes when investors sell government bonds in response to fiscal policies that they view as inflationary, driving up borrowing costs for the government.
"I think [bond vigilantes are] still a relevant risk," Yardeni explains. "It certainly looked like a more relevant risk to a couple of days ago, but markets will be volatile on a short-term basis. I think there's still a lot of concern in the bond market about undisciplined fiscal and monetary policy.
"The fact that the [Federal Reserve] lowered rates by 100 basis points and the bond yield went up 100 basis points was a clear indication that the bond vigilantes, so-called, just didn't agree with what the Fed was doing," he says.
The strategist says "the jury is out," as the bond market and bond vigilantes "want to see how the Trump administration is going to put together all the pieces of their proposal in a way that gets us some relief on the deficit outlook."
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This post was written by Naomi Buchanan.