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In the bond market, prices move inversely to yields. When investors perceive that inflation risk or credit risk is rising they demand higher yields to compensate for the added risk. As a result, bond prices fall and yields rise, which increases the net cost of borrowing. The term references the ability of the bond market to serve as a restraint on the government's ability to over-spend and over-borrow.
From October 1993 to November 1994 US 10-year yields climbed from 5.2% to just over 8.0% fueled by concerns about federal spending. With some guidance from Robert Rubin, the Clinton Administration and Congress made an effort to reduce the deficit. 10-year yields dropped to approximately 4% by November 1998.
Clinton political adviser James Carville said at the time that “I used to think that if there was reincarnation, I wanted to come back as the president or the pope or as a .400 baseball hitter. But now I would like to come back as the bond market. You can intimidate everybody." 
Some suggest that bond vigilantes are making a return with worries over sustainability and budgetary responsibility. Mark MacQueen, a partner and money manager at Austin, Texas- based Sage Advisory Services Ltd., says “The vigilante group is different this time around. It’s major foreign creditors. This whole idea that we need to spend our way out of our problems is being questioned." However, economist Paul Krugman and other New Keynesians point out that there is no evidence for bond vigilante activity by pointing out the fact that 10-year yields remain quite low.
During the Eurozone crisis that started in 2009, bond vigilantes were blamed for pushing up the government borrowing in the PIIGS countries. However Ed Yardini, who coined the term Bond Vigilantes in the 1980s, said that actions of central banks were able to keep rates low against the pressure of the vigilantes.
- May 29, 2009. Bloomberg - Bond Vigilantes Confront Obama as Housing Falters Archived January 23, 2009, at the Wayback Machine.
- "Archived copy". Archived from the original on 2008-04-30. Retrieved 2009-01-30.
- "Ed Yardeni: "Bond Vigilantes" Get to Work in the Eurozone". NZZ Capital Markets forum. 2012.
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