The bond vigilantes who reigned supreme three decades ago, punishing Washington for running up yawning budget deficits by dumping US government bonds, are once again flexing their financial muscles.
This is an eerie replay of what happened three decades ago when bond vigilantes orchestrated a widespread selling campaign of US government bonds, as a way of pressuring Washington to embrace fiscal discipline.This sell-off caused the yield on US 10-year bonds to jump from around 5.2 per cent in late 1993 to more than 8 per cent a year later.
Ackman’s comments are a bitter reminder that the era of ultra-low interest rates, when governments, corporates and consumers could borrow with impunity, have now ended.The steep rise in interest rates since early 2022 mean that investors are taking a much dimmer view of debt-laden borrowers.Bond markets are alarmed to see that the US deficit ballooned to $US1.5 trillion in the first 11 months of the US fiscal year, which runs from October, at a time when the US economy is at full employment.