Part 2/8:
Dr. Yardini introduces the concept of bond vigilantes, a term he coined back in 1983 during a time of high inflation that caught many bond investors off guard. The term refers to bond investors who react to inflationary measures by raising interest rates when they believe that the Federal Reserve and fiscal authorities are not acting decisively enough.
With historical deficits ballooning to unprecedented numbers—from $200 billion in the 1980s to today’s projections of $2 trillion—Dr. Yardini asserts that these bond vigilantes have become increasingly powerful and influential in ensuring fiscal responsibility.