Return of the Bond Vigilantes

“I used to think if there was reincarnation, I wanted to come back as the president or the pope or a .400 baseball hitter. But now I want to come back as the bond market. You can intimidate everybody.” – Democratic Election Strategist James Carville, 1993 DoubleLine Portfolio Manager Eric Dhall and Analyst Mark Kimbrough survey a “neck-snapping” week ended May 15 that saw stocks (0:32) sell off Friday after the S&P 500 marked an all-time high on Thursday. The party crasher came from the fixed income market (3:27). Inflation-focused bond vigilantes sent Treasury yields higher by 20 basis points or more from two-year to 30-year tenors across the curve. The Bloomberg Commodity Index (9:21) edged higher, amid wide dispersion, as energy rallied, copper was flat and precious metals were sold. Macro news (11:21) began with a consensus-matching April CPI on Tuesday but was dominated by an April PPI on Wednesday showing broad signs of inflation. Eric Dhall suggests Friday’s fixed income vigilantism amounted to a “delayed reaction” to the week’s earlier inflation news. Eric and Mark note fed funds futures are pricing in a Fed standing pat until July 2027. The May 18-22 week will be a light one for the statistical mills, with the most notable items being an FOMC minutes release, jobs claims and S&P Global manufacturing and services reports.