Bond vigilantes are investors who actively sell bonds to protest or influence government fiscal or monetary policies they deem unsustainable, such as excessive federal borrowing, unchecked inflation or threats to central bank independence.
By selling bonds, vigilantes drive up yields, increasing borrowing costs for governments, effectively forcing policy changes. The term, coined in the 1980s by economist Ed Yardeni, reflects their role as self-appointed guardians of fiscal and monetary discipline.
The actions of these watchdogs can highlight distrust in a government's financial management and impact yields for both that country and associated countries. For this reason, vigilantes wield significant power in financial markets, using their influence to curb what they perceive as economic mismanagement.