Will Bond Vigilantes Tank the Stock Market?

**Greg Hall** (0:00)
Hi, I'm Greg Hall, Pimco's head of Global Wealth Management in the United States, and the host of the Accrued Interest Podcast. Accrued Interest is built for financial advisors and their clients.
In each episode, I sit down with portfolio managers, economists, and industry leaders to discuss the issue shaping markets and portfolios. As you listen to Streetwise, you'll hear excerpts from my recent conversation with Pimco Group CIO Dan Iveson on Themes Explored and our latest secular outlook, Rupture and Resilience.

**Jared Woodard** (0:31)
A lot of times those investment booms were to the greatest benefit of consumers or even businesses in the aggregate rather than investors. And if that history repeats once again in the next several years, it's going to be investors who truly are diversified across sources of risk and return, that I think are going to be the ones who are most richly rewarded.

**Jack Hough** (0:52)
Hello and welcome to the Barron Streetwise Podcast. I'm Jack Hough, and the voice you just heard is Jared Woodard. He's the head of the Research Investment Committee at Bank of America. He's going to be talking with us in a moment about rising bond yields and how high yields have to go before they tank the stock market. Jared has a specific number in mind, and he'll talk about whether that will happen. Spoiler alert, he doesn't think so. Also why 60-40 investing appears to be broken and what investors should do instead. That's a lot to get to, so I better hurry up and get my aimless rambling out of the way.
Let's get into it.
Listening in is our audio producer, Emily Sumlin. Hi, Emily. Hi, Jack. You have heard, I'm sure, probably just lately, the term bond vigilantes, have you not?

**Emily Sumlin** (1:50)
I have indeed.

**Jack Hough** (1:51)
What comes to mind when I say vigilante? What kind of person do you picture?
A good person or a bad person? A hero or a villain?

**Emily Sumlin** (1:58)
Tragically misunderstood, but morally gray.

**Jack Hough** (2:01)
Okay.
That's kind of a best-case scenario for the traditional usage of the word. Sometimes it's just an outright villain. Like Dexter from TV, the serial killer who killed other serial killers, he was a vigilante. But didn't you come down on his side sometimes? But then you have outright villains like Two-Face, the Batman guy. I can't remember his exact story, but he was a bad guy, I remember from the movie. Or there's a lady who called the town on me a few years ago when I was cutting down a big tree because I didn't have a permit for it. Even though the tree was rotted in the middle, it was going to fall. I was only cutting it. I'm not going around clear cutting the trees.
That's a vigilante. Her and Two-Face, I would put in the same camp.

**Emily Sumlin** (2:49)
You're not the vigilante in that scenario?

**Jack Hough** (2:52)
I was trying to save people from a falling tree, I swear.

**Emily Sumlin** (2:56)
Yeah, I think you were, unfortunately, the unauthorized tree cutter with a vigilante, for the good of the people, but still unsanctioned.

**Jack Hough** (3:05)
I was the one with the chainsaw. And by me, I mean the people I hired to use the chainsaw.

**Emily Sumlin** (3:09)
It wasn't even, you didn't even do it yourself. I don't do that kind of thing.

**Jack Hough** (3:14)
Anyhow, where was it? Oh yes, to your point, Emily, rarely is vigilante used in just purely a happy light.
There was a story earlier this year in the Montreal Gazette about a pothole vigilante. That was an area landscaper who was making overdue repairs on public roads in his spare time. Under threat of fine or punishment, this man was putting his asphalt on the line. And I say, that's a straight up hero, but that's a rare case. Anyhow, I bring up vigilante of course, because we have all been hearing about bond vigilantes. What's happened is that bond yields are rising. This year, the yield on the 10-year treasury is up a half point to 4.7%.
That's a big move. The 30-year treasury has been rising too. It recently went above 5.3%, the highest level in nearly two decades. Some people say this is the work of bond vigilantes. They're out there punishing spendthrift politicians over these runaway deficits. And that makes me wonder, could innocent stock investors like us be caught in the crossfire? And if so, what level of bond yields is cause for panic? I raise this question because I often hear 5% on the 10-year treasury as that number. And we're pretty darn close now, 4.7%.
There is some anecdotal evidence for the 5% theory. In the back half of 2023, the 10-year treasury yield climbed a full point to top 5% for the first time since 2007 And the stock market protested along the way.