PrefBlog

Guess who’s back?

E. Craig Coats Jr. never set out to be a bond vigilante.

As the former head of Salomon Brothers’ Treasuries desk, the last thing on his mind running the world’s biggest debt trader in the 1970s and 80s was fighting Washington’s fiscal largesse. He had a much simpler agenda: survive.

In an era when inflation outbreaks could send yields surging hundreds of basis points in a matter of days, getting stuck on the wrong side of the bond market could end your career. That’s why for Coats, any hint consumer prices were poised to spike was a sign to sell with both hands. The knock-on effect, of course, was that he inadvertently became a disciplinarian of American budgetary freewheeling, forcing officials to curb inflationary policies or risk an upward spiral in funding costs.

It’s been a generation since traders like Coats last imposed their will on Washington and Wall Street alike. Yet the original vigilante says he’s seeing signs that the once feared punishers of profligate spending are lurking again, lured back by an expansionary fiscal policy and signs of resurgent inflation — just as the world’s central banks dial back years of unprecedented bond buying that’s largely shielded politicians from market pressures.

This entry was posted on Monday, March 12th, 2018 at 6:46 pm and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.