{"id":87064,"date":"2025-12-30T07:43:39","date_gmt":"2025-12-30T07:43:39","guid":{"rendered":"https:\/\/www.taxresearch.org.uk\/Blog\/?p=87064"},"modified":"2025-12-30T07:43:39","modified_gmt":"2025-12-30T07:43:39","slug":"glossary-entry-bond-vigilantes","status":"publish","type":"post","link":"https:\/\/www.taxresearch.org.uk\/Blog\/2025\/12\/30\/glossary-entry-bond-vigilantes\/","title":{"rendered":"Glossary entry: bond vigilantes"},"content":{"rendered":"

I have added this entry to this blog's glossary at the request of some commentators. I stress that in an area as complex as this, the entry can only be an outline.<\/em><\/p>\n

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Bond Vigilantes<\/b><\/p>\n

The term \"bond vigilantes\" was almost certainly coined by financial journalists seeking a bit of drama in their otherwise humdrum reporting. The term they invented makes markets sound as if they share plots with Clint Eastwood films.<\/p>\n

Supposedly, bond vigilantes<\/span> are investors who \u201cpunish\u201d governments they dislike by selling government bonds and driving up interest rates. As a result, it is suggested that they determine which governments are \u201cresponsible\u201d and which deserve market retribution.<\/p>\n

There are several problems with this story.<\/p>\n

First, <\/span>who are they?<\/span><\/strong><\/p>\n

So-called \"bond vigilantes\" are employed by some of the world's most prominent financial institutions, including pension funds, insurance companies, asset managers, and banks. These are not heroic outsiders standing up for truth. They are the same institutions that have profited massively from the neoliberal order over the last forty years, and in the course of their routine activities, they buy government bonds because they need safe assets in which to save funds on behalf of their clients. They then sell them again when they get spooked (which appears to happen regularly) or when they can make more money elsewhere. There is nothing noble or democratic about any of this.<\/p>\n

Second, <\/span>what do they actually do?<\/span><\/strong><\/p>\n

These traders buy and sell. They speculate on interest rates, inflation and central bank behaviour. And, when they sell bonds in large quantities, the market price of bonds falls. A falling price equals a rising yield (for an explanation, see the glossary entry on bonds). The media interprets that as markets \u201closing confidence in government policy\u201d. The reality is simply that investors are making a calculated bet that they can profit from forcing up the cost of new government borrowing.<\/p>\n

Third, <\/span>how do they do it?<\/span><\/strong><\/p>\n

Traders exploit a system in which governments pretend to \u201cborrow\u201d their own currency from financial markets, although in reality, when a currency-issuing government sells bonds, it is not accessing money it does not have. It is, instead, swapping one form of government money (bank reserves) for another (bonds). But as long as governments maintain the fiction that they depend on these markets to fund public services, the traders hold power. They can create a sense of crisis because politicians are terrified of interest rate rises that they think they cannot control, even though they actually have the power to do so.<\/span><\/p>\n

How, then, do traders create the impression that they might, instead, be in control? This is where the tools of highly leveraged speculation come into play. Traders do not wait around to see if prices fall. They deploy techniques that can push prices where they want them to go:<\/p>\n