Are the Bond Vigilantes Really Dead?

“I used to think if there was reincarnation, I wanted to come back as the president or the pope or a .400 baseball hitter. But now I want to come back as the bond market. You can intimidate everybody.” That was political strategist James Carville back in 1993.

Younger readers might find the characterization of the bond market from a quarter century ago a bit bemusing. For them, the “bond market vigilantes” are little more than figures in a scary story that grizzled fixed-income investors use to keep young folks on the straight and narrow. After all, the Bloomberg terminal is full of bond quotes offering almost absurdly low yields despite elevated levels of public debt.