Donald Trump’s dangerous ideas have these ‘vigilantes’ worried

Joe Biden’s disastrous performance in last week’s presidential debates is bringing the so-called “bond vigilantes” off the market’s sidelines that they have occupied for more than a decade and a half.– has seen bond yields spike and the yield curve steepen, with the yields on longer-term bonds rising more than those at the short end of the curve.The yield on two-year Treasuries has only edged up from 4.71 per cent to 4.74 per cent but the yield on 10-year bonds has jumped from 4.

Those “vigilantes” have been on the sidelines for most of the period since the global financial crisis even as, since Trump’s first term and through Biden’s, US deficits and debt have exploded. It’s not just because Trump showed a complete disregard for fiscal discipline first time around but that he has a set of policies for a second term that would have far more impact on deficits, debt, inflation and the volume of bond issuance than that of that first term.The largest element of his first term spending was the $US1.9 trillion package of tax cuts, primarily for companies and the wealthy. Those expire, unless extended, next year.

There’s been a lot of focus on Trump’s trade policies and his plan to impose a universal baseline tariff on all imports, with a 60 per cent tariff on all imports from China. Trump’s immigration policies, apart from stopping the flow of illegal migrants, envisage the mass detention and deportation of undocumented immigrants – he’s nominated between 15 and 20 million of them.

There’s an additional layer to their agitation. Trump is no admirer of the Fed or its chairman Jerome Powell. He wanted to get rid of Powell during his last term and tried to stack the Fed with his own nominees but failed.

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