Bond vigilantism is resurgent in the market for sovereign debt. That emerged with remorseless clarity from the brutal sell-off of UK gilts that toppled hapless British prime minister Liz Truss. Could the fiscal disciplinarians of the global investment community now turn their disruptive talents to the US Treasury market?
As well as savaging the president of the day, such a challenge could devastate the US’s role as the world’s chief provider of safe assets during global crises, while simultaneously threatening the dollar’s status as the pre-eminent reserve currency.
For many, the idea is simply unimaginable. In a recent speech, Federal Reserve governor Christopher Waller declared that flights to the dollar in the financial crises of 2008 and 2020 were “the ultimate vindication that the US dollar is the world’s reserve currency and is likely to remain so”.