(Bloomberg) -- “Bond vigilantes” are back in the saddle and riding high again having mostly been on hiatus since the early 1990s, according to the veteran economist credited with coining the term in the 1980s.

In a note titled “The Bond Vigilantes: They’re Baaaack!” Ed Yardeni said the huge amount of monetary and fiscal stimulus released during the pandemic has unleashed forces that haven’t been seen for decades, forcing central banks to respond with the massive policy tightening seen this year.

“Once the central banks were forced to stop their Great Financial Repression, the bond vigilantes were set loose,” wrote Yardeni, president and chief investment strategist of Yardeni Research Inc.

His comments came as the worst bond selloff in decades is seeing few signs of ending.

US Treasury yields surged on Monday, with poor demand for a two-year note auction triggering renewed selling that pushed key benchmarks higher by more than 20 basis points -- and sent the 10-year rate up by the most since the March 2020 Covid crash. Two-year US yields are up more than 3.5 percentage points this year, which would be the biggest annual surge on record in data going back to 1976. UK notes have lost a stunning 27% this year.


Already down more than 20% from its peak, the Bloomberg Global Aggregate Total Return Index of investment-grade government and corporate bonds has dropped for an eighth session. 

In a similar warning to Yardeni, former Treasury Secretary Lawrence Summers warned in a series of Twitter posts that the UK government’s fiscal policy has unleashed a currency crisis for the pound that could have global consequences and erode London’s status as a global financial center. 

“The magnitude of Britain’s trade current account deficit underscores the seriousness of its challenges,” Summers, a Harvard University professor and paid contributor to Bloomberg Television, wrote on Twitter. “My guess is that pound will find its way below parity with both the dollar and euro.”


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