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Market Extra: With federal spending on the loose, are bond vigilantes set to make a comeback?

Budget deficits are set to explode after President Donald Trump signed off on a fresh deal Wednesday that will pump hundreds of billions more dollars into an economy many see near full capacity.

“While that will mean 2018 is a very strong year for economic growth, it will add to the rebound in inflation already underway,” said analysts at Capital Economics.

That could set the stage for so-called bond vigilantes to punish the U.S.’s fiscal profligacy by pushing up interest rates until it began to take a toll on growth and volatile financial markets.

“With the fiscal deficit heading beyond 5% of GDP, it raises the risks that “bond vigilantes” make an unwelcome return,” they said.

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