[Note: Updated on 2.16.2011]

What is a bond vigilante?

A bond vigilante is a bond market investor who protests a country's fiscal policies by selling off its bonds and refusing to buy them. This happens when the bond investors perceive the policy to be inflationary, and can act as a check on a government that is over-spending. The proof of vigilante action is high interest rates, as yields rise when investors perceive risk; this makes a government's cost of borrowing rise.

What's the significance?

Conservatives who worry about government spending have threatened that bond vigilantes will appear unless we cut the deficit. However, interest rates are low and demand for US bonds is high. Rather than heading toward inflation, many economists think deflation is a more likely threat. Bond vigilantes so far have yet to materialize, undermining some of the credibility behind calls for fiscal austerity.

Who's talking about it?

Paul Krugman calls out conservatives who demand deficit cuts to appease the invisible bond vigilantes...Brian Millner at The Globe and Mail wonders where all the supposed bond vigilantes are...Stan Collender at Roll Call says that today's bond vigilantes are supporting deficits and borrowing...Nouriel Roubini predicts disaster if the U.S. doesn't get its budget under control...John Cassidy thinks President Obama's 2012 budget is a plea for bond vigilantes to be patient.