‘Bond Vigilantes’ Arrive in the UK

September 26, 2022

‘Bond Vigilantes’ Arrive in the UK Photo

Bond market action in the United Kingdom (U.K.) since the new government’s tax-cut plans were announced Friday likely marked an important turning point for government policymakers. The U.K. bond and currency markets have started to unravel, with 10-year U.K. gilt yields spiking above the 4% mark and the British pound trading down to record-low levels. 

The dramatic move higher in sovereign bond yields since Friday is reminiscent of the early 1980s inflationary environment, when noted economist Ed Yardeni coined the term, “bond vigilantes.” This term describes fixed-income investors with the power to enforce fiscal and monetary discipline on fiscal and monetary policymakers to fight inflation. Central bankers are likely to have fewer and fewer options to calm markets during periods of stress, while inflation remains the number-one priority.

Tags: British Pound | Inflation | Bond vigilantes | Bond markets | U.K.

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