https://www.cnbc.com/2018/02/09/bond-vi ... rdeni.htmlThere's reason to be concerned about bond vigilantes, who are no longer under "lock and key" and are free to push yields higher, Wall Street veteran Ed Yardeni told CNBC on Friday.
"They had been sort of put under lock and key by the central banks. The Fed had lowered interest rates down to zero in terms of short-term rates and that pushed bond yields down. And then they bought up a lot of these bond yields," said Yardeni, president of Yardeni Research.
Now the Fed is slowly raising interest rates and starting to unwind its balance sheet. On top of that, new tax cuts were passed and a massive spending deal was just signed into law.
And late last year, the Republican tax cut was enacted that will add more than $1 trillion to federal budget deficits over a decade.
However, Yardeni isn't convinced the deficit will have a big impact on the bond market.
"You look back historically and the deficit really hasn't been as influential as you would think in determining the bond yield. It's really been much more inflation," he said.
However, he doesn't think inflation is coming back.
He ultimately sees the 10-year Treasury hitting 3 percent or 3.5 percent. The benchmark note was at 2.838 on Thursday, after hitting a 4-year high on Monday when it flirted with 2.885 percent.
You know what they say about predictions and your anatomy.
I am showing my age but I remember watching Jim Grant come on Louis Rukeyser every Friday to excoriate the deficits and promising revenge. Those were the days.
So where are the bond vigilantes? Maybe they are like me getting excited about 1.8% 6 month T-Bill rates that are still below inflation.