Several recent developments have ignited a flurry of possible Bond Vigilante sightings. The Bond Vigilantes are a mythical band of marauders who allegedly come riding into town causing all kinds of problems for policy makers, markets and Ma and Pa. The original BVs were rumored to keep the US from getting too frisky with its spending and credit creation in the 1980's. Like Liberty Valence, the myth was bigger than the truth, so the myth grew.
Lately, a spate of reverse engineered thinking has led some to argue that If the BVs would do a little number on the market (Not a Slim Pickens "Ol number 6" from Blazing Saddles mind you) Then the monetary mayhem might spark some AD consequences. Others would already say that the Fed is encouraging the behavior with the added bonus that they'd meet the BVs at the edge of town. More directly, would an increase in yields coincide with, nay induce, a pick up in AD?
While skeptical of the causation, we are not uncomfortable with the correlation, hence our Bond Yeti moniker. Obviously, the bond market cannot provide the vigilance needed to obstruct a global super power holding the reserve currency from borrowing the crap out of itself . In fact, few sightings were even recorded in Europe while Greece, Portugal, Spain and Italy ran up massive borrowings as if they were Germany. No footprints, no mysterious stolen goats. Bond Yetis seem to have a much richer history of "playing along" with rather than restricting a debt party.
Carville summed it up best, (paraphrase)"When I die I want to come back as the bond market, it gets whatever it wants." Nervous citizens are hunkered down in low/no yielding IOUs as the deficit has exploded. CBs in UK and Japan are moving to magically wipe away the obligations they buy. The media outlets are hyping a political event with more gusto than a Janet Jackson half time show. And yet, neither Vigilante or Yeti has been seen.
Maybe the best label is Bond Ninja. You never see him coming until its too late.