Bond Yeti

The Bond Vigilante is an American folk hero. Like most folk heroes, his story is a mix of myth and hyperbole surrounded by some facts. We looked back at the legend of the Bond Vigilante and found Bond Yeti a far more accurate moniker.

The largest cluster of Bond Yeti sightings coincided with the early 1980s bond trough. In reality, even with the creation of a host of new financial derivative products, the Volcker Fed was mysteriously seen in or around all reported Vigilante occurrences.

The hardest evidence of the Bond Vigilante is the months leading up to the Bush I retraction of the "Read my lips" pledge. The Fed was moving from a monetary regime (QE in today's lingo) to an interest rate target regime. Greenspan moved the FF rate incrementally from 8 to 7 in 1990. The dollar was taking a beating. The budget, ring fenced by Gramm-Rudman-Hollings, was viewed as out of control. Most bond desks were buying on recession fears but the buck and bonds continued to crater. In June, Bush caved publicly but without details. By Sep/Oct the economy cracked and bonds rallied. The Charles Bronson moment for bond vigilance turned out to be accidental and short lived.

Finally, the post credit super cycle collapse has experienced several spotty reports of the Bond Yeti roaming the remote corners of the Globe. It appears the beast enjoys Mediterranean Europe to the US. Real rates are deeply negative and the Fed has just adopted an inflation target. General inflation may prove elusive but "common man" inflation (public transportation, gasoline, beef and milk) is perking up. He may be the toothless Bumble from Rudolph but we expect to hear of Bond Vigilante sightings soon.

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