Bond vigilantes. Who they are, what they want, and how you'll know they're coming
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This is the indicator from planet money. I'm willing wrong.

and i'm petty harsh. If you've been paying any attention to the financial news this last week and who hasn't, then you might have gotten wind of a new passes that's just written into time. Some say their heroes, some say their billion, their name, the bond vigilantes.

Snappy, there are a blast from the past who are striking fear into the hearts of fat cats. Spend through with politicians on both sides of the political divide. They're also, like most of us, big opponents of the hottest topic in the presidential election.

Inflation one today show the bond vigilantes where they came from, what they want, and maybe most important, how you can tell when they're a about to ride into action and do what they think needs to be done.

I get tied to the railroad tracks after the break.

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For as long as there's been government, there have been groups of people unhappy about the way that administrations due business lobby as interest groups, crowds in the street.

Yeah, some of these groups have more leverages than others, but none has as much leveraged as the bond vigilantes. The bound .

vigilants will take a law in order into their own hands if they don't believe that the government's fiscal monetary policies are doing the job.

This is, add your Denny. He's the president of your danny research, an investment research firm, and he's been investing in watching wall street since one nine hundred and seventy eight. You are the creator or the originator of this phrase, bon vigilante.

Well, he is charged .

or he was the first one to make a wanted .

poster that said via and came up with .

this phrase, bond vigils to describe a group of big investors think your pension funds and heavyweight investment firms who have been battered by inflation in the seventies, they were worried that the government's fiscal and monetary policies in the eighties could trigger more inflation.

yes. So they kind of form this unofficial policy to force the government's hand know, to keep IT from borrowing too much, from producing the economy too much, all of which, of course, could fuel inflation.

There were three episodes in the ninety eighties were bonde's, rose, G, D, P, rose, slowed. Inflation came down. And always, well, now I understand .

that that might sound little monkey. So allow me to extend this wild west analogy to explain what this policy of debt hating investors actually did. The bond vigilantes were and are armed with two weapons, a pair of six guns, if you will, hosted on their right hip bond purchases and on the left bond sales. And we are .

talking about government bids here, U. S. Treasuries and particularly longer term treasury ies, like ten year notes and thirty year bonds, which has all loyal indicator listeners know, are sold by the treasury at auction throughout the year .

yeah the treasury, when IT sells these bonds, points on a lot of buyers showing up. The more buyers, the more demand and therefore the the less interest the treasury ends .

up having to pay. But what if those buyers, especially those big buyers like pensions and downs and investment shops like vanguard delity, what if they decide not to show up?

And this is the first of the bond vigilant pistol refusing to buy.

then if people shock for the .

treasury auction.

and it's a slappy auction, bond auction, yet, there's not enough demand for government bonds. The treasury has to increase interest rates or yields to get people to buy them, which, as says, can get very expensive.

The second weapon is bond sales. These investors hold a lot of bonds, billions upon billions worth. What happens when they get nervous about the way the government is handling inflation?

People who actually, all these things, just William nearly called the broker today. So just get me out of these bands. I don't want to take any risk. I want to see how things play out.

The vigano sell their bones. Prices fall. Yields, of course, rise. And neither government is forced to issue any new bonds at a higher interest rate.

Both of the bomb, vigilant six guns, have the net effect of causing the government more money, a lot more money. No wonder the bomb, Gillian, ties of so much power. But we've been racking up debts for years now. So why have the bomb vigiLance is decided that now is the time to make a comeback.

and then you've got a new administration and they want to get certain things done. But I don't hear the words cut the spending.

This is maryland coin, the CEO of envision capital management and investment firm. She's been investing in bond since one thousand and seventy nine. Almost as long as that you're Denny, he says the way he sees IT the bond la posta has drawn up on the outskirts of time they are holds up in a cantina drinking whisky and waiting to see how things go dine in the new year.

If under the trump administration, spending continues with abandoned, then the bond vigilantes will say, okay, guys, get on your horses. We've gotto take this into our own hands.

Are you a bomb? Vigee ti marland.

I would not well know. IT takes a institution far larger than than envision capitalism. IT takes the pinkos, IT takes the black rocks. IT takes the treasures of pension funds to just say, we are on strike, we are not buying any of these, and you can have an effect if they all do IT in concert.

Would you like to be a bomb violently?

Oh, i'd loved you. Loved you even make me feel so powerful.

SHE is settled up. SHE is ready to go, just waiting for that phone call. Well, with the national debt standing at roughly thirty five trillion dollars, bondholders should feel powerful. They have a lot of potential influence, maybe too much influence. Idear Denny says that the government's fault for not keeping a grip on spending.

This is what happens when borrows borrow a lot of money and become dependent on their lenders. The more barbarous, the more the lenders become influential and the borrowers.

the us. Has been borrowing a lot more lately. Still, lad says things are looking up inflations come down.

Productivity looks like it's picking that come back. So it's conceivable that we won't even have a death crisis that maybe the term administration will succeed in at least stopping the debt GDP ratio from going up. And that would be a big plus. And the bond market, I think.

could live with that, fingers crossed. But trump has talked about some big tax cuts. They won't be cheap. Ed says they will likely have to be paid for with new borrowing. And the time of trump's talked about could also cut into tax revenues that would force the government to raise money by going back to the bond market.

If the government doesn't up, having to borrow more, or if the economy begins to stall and the government decides to duce IT with stimulus, those bond vigilantes could decide to settle up. But maryon coincides will get plenty of warning if they do.

you'll know the bond vigilantes is are alive and well when you have one, maybe two, treasury auction in which the auction has a starter. Step a look at the front page of the wall street journal. When IT talks about the treasury auction, listen to the news snip, its on the financial station, old boy, they had an auction today and I didn't go well. You know, that's the starter step, and I think that will be very important.

In other words, keep listening to this show will let you know if the bond vigilantes are riding this way. You can decide that that to stay in time and tough IT out or run for the hills.

I would run, but i'm so tired to this railroad track party.

The trains are common.

This evidence was produced by Julie Richard with engineering by volunteering or giga sanchez IT was specchi ked by sarod tz taking and at is the show and the indicators production of N P, R.

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