Dr. Ernie Goss of Creighton University is focused on the buying and selling of bonds, as well as the term ‘bond vigilantes’ — a term coined by Dr. Edward Yardeni of Yardeni Research — in an October newsletter.

The buying and selling of bonds can have drastic effects on the market. Bond vigilantes are “a bond trader who threatens to sell, or actually sells, a large amount of bonds to protest or signal distaste with policies of the issuer”, first used in the 1980’s when bond traders sold treasury bonds to combat the control that the Federal Reserve had on the economy.

Bond vigilantes have had positive and negative impacts on the economy, by leading to lower bond prices, as well as raising interest costs and lowering profits on investments. They have, in Goss’ words, “forced DC politicians to face the problems of soaring federal budget deficits”, while also being one of the many factors for why the median price of housing continues to rise and is now closer to 40% of consumer spending.

We have seen bond vigilantes multiple times in the last fifty years, such as during the Clinton administration and the 2008 housing crisis. While bond vigilantes are not the cause of recessions, they can often be seen when recessions are creeping ever closer.

Shifting focus to what market expectations currently look like, Goss expects Saudi Arabia to continue to cut oil production, leading to raised prices, as well as loan rollover to lead to an issue for commercial real estate and the loan markets. While the US has added around 330,000 jobs, and the rate of part-timers looking for full-time jobs has risen to 4.1 million, the rate for mortgages is keeping many from being able to change jobs safely.

Goss recommends that people keep an eye on the 10-year Treasury bond, which will be the best financial indicator for the possible recession. He also recommends watching oil prices, which as of October was sitting between $80-90, and signs of it going over $95 will be a sign of another Federal Reserve hike.