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In the last two years, economists and financial pundits have been arguing whether Bond Vigilantes (see also this question) exist, and if they do, if their actions are significant enough to pose a threat to economic recovery.

A bond vigilante is a bond market investor who protests monetary or fiscal policies they consider inflationary by selling bonds, thus increasing yields

This brings me to the following:

  • Is there any evidence of bond vigilantes in the past or present? (e.g. examples of investors or investment firms that sold bonds en masse and at a large scale from fear of inflation)
  • Is it possible to objectively tell them apart from regular investors? Are there any quantitative metrics that Economists agree on that can be used to detect and measure the macroeconomic impact of their actions?

Thanks

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    While there isn't much evidence of bond vigilantism, you may find it interesting to look into the Paris Club, which some argue uses sovereign-sovereign bonds as a tool of foreign diplomacy (see eg "Paris Club comes under attack", Euromoney Sept. 2000, p. 56). Some also argue that IMF conditionality has effectively replaced gunboat diplomacy. In both cases, there is an underlying non-monetary political motivation for financial failure of a state that would lead to "bankruptcy-to-rule"/debtor-in-possession.
    – Brian M. Hunt
    Jun 24, 2011 at 18:28

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  1. I think you first need to agree on a definition of "Bond Vigilante".

    • Wiki link you provided has a definition of "A bond vigilante is a bond market investor who protests monetary or fiscal policies they consider inflationary by selling bonds, thus increasing yields". In other words, they sell to achieve some sort of political policy goal.

    • On the other hand, your own "e.g." merely says "examples of investors or investment firms that sold bonds en masse and in large scale from fear of inflation". In other words people who think selling bonds will make (or not lose) them money.

    The former is kind of hard to imagine happening in practice (see below), although a THREAT of selling - especially by large sovereign funds (think Chinese government) might be employed. I don't think there's an actual proof (short of Geitner spilling his beans), but plenty of people are convinced Chinese did use that as leverage.

  2. As far as "Bond Vigilantes" as defined by "people who sell bonds to achieve some political result", you gotta be effing kidding me. When you manage money, your one and only goal is to make and/or not lose money..

    Look up "fiduciary duty" for explanation why no large bond holder would gamble with clients' money that way - contrary to what Bernie Madoff case might have implied to lay public, most asset managers take this stuff very seriously.

    If you think selling bonds makes you money (or that holding them looses you money or makes money less than other assets), then you sell.

    Then with the earned billions, you buy politicians/political apparatus/influence to do the things you want (see Soros, George for an example, although he made his money in FX, not FI :)

  3. As far as "examples of people who sell bonds for fear of inflation", who needs nebulous "Bond Vigilantes" when the former "Bond King" (in other words, the fund manager of a fund that at some point held the largest bond holdings in the world), Bill Gross of Himco, has been selling treasuries.

    Ironically enough, Gross's arch-enemy, Larry Fink of Blackrock (or at least BLK's bond fund managers) are going long treasuries. Time will show who made the right call :)

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