As the fear of inflation rattles Wall Street, Politico asks if we’re seeing the return of the “bond vigilantes” — investors who drive up interest rates by selling bonds when they think inflation is rising and threatening to eat into their profits.
Milan Dalal, a former Senate staffer, told Politico that "The recent sell-off demonstrates the pass the bond market gave the U.S. over fiscal profligacy is coming to an end. For the past decade, the bond market has ignored our debt burden because we were the only growth game (however anemic) in the developed world. Combined with the dollar's reserve currency status, investors had no choice if they wanted growth and safety but to buy dollars and hold down rates. Now that Europe and Japan are recovering, there are other options. Add to that the massive tax cut — likely well beyond $1.5 trillion addition to the deficit — and the bond market is appropriately demanding higher interest rates.”