When the government borrows at an unsustainable rate, sometimes it isn’t new faces in Congress that force a return to fiscal discipline, but “vigilantes” in the bond market. Investment banks, hedge funds, insurers, and other large investors will look to drive up government borrowing costs by selling their holdings of Treasuries, thereby increasing the interest rate that the federal government has to pay to service its debts.
Ed Yardeni—an economist who spent decades on Wall Street at firms like Deutsche Bank and Prudential and now runs his own financial consulting firm, Yardeni Research—coined the term “bond vigilantes” in 1983 to describe these market-moving investors.
