The Guardian carried a story
the day before the budget, wondering whether ‘bond vigilantes’ would punish
Rachel Reeves with a Truss-style market meltdown. Curious word, vigilante, with
at least three different connotations that I can think of. The first – showing my
age – takes me back to watching Mr Pastry on the TV as a child on a Saturday
afternoon. There was one episode where, misunderstanding everything as usual,
he wanted to become a village aunty. It has a warm, cosy feel to it – the idea
that kindly people are looking out for others. A more dystopian version is
where gangs of vigilantes roam the streets imposing their own version of the
law, by force if necessary, meting out punishment to those who refuse to comply
with their rules. Somewhere in between the two lies the concept of people
acting together to assist the enforcement agencies in upholding the law.
The ’bond vigilantes’ referred to by the Guardian don’t fit
any of those categories. These are people who are looking to turn a penny by
trading bonds, in massive quantities, with the intention of leveraging the odd
few pennies here and there – multiplied, of course, by the millions of bonds involved.
They are more akin to gamblers and speculators than law enforcement officers.
They claim to be using their judgement on financial events, such as the budget,
to guess as to whether rates of return will go up or down as a result. In truth,
they aren’t really even doing that – they’re actually guessing about whether
other traders will guess that rates will go up or down and placing their bets
accordingly.
Bond market speculation isn’t like betting on the geegees
though. When it comes to horses, the number and size of bets placed may affect
the odds that the bookies will give you, but they don’t make the horses run any
faster. In the financial markets, the bets placed directly affect the outcome
as well. If enough people buy and sell bonds in a way which anticipates a rise
in the rate of return, then the rate of return will rise, and vice versa. The
sad part is that the neoliberal governments, of whichever party, with which we
have been saddled for decades believe that things have to be this way, and they
have no choice but to follow the dictats of the markets. Their power is
constrained mostly by their own lack of imagination.
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