Who's afraid of the bond market?
A trader holds his head while working on the floor at the New York Stock Exchange.
Kai Ryssdal: You can't talk Italy without talking bonds. Investors demanded rates as high as 7 percent to buy Italian debt. And yes, I know, as soon as we start talking yields and maturities, your eyes start glazing over.
But it behooves us to pay attention, as our New York bureau chief Heidi Moore explains.
Heidi Moore: Who picks the leader of Italy? The voters elected Prime Minister Silvio Berlusconi. The bond markets want someone new. They don't have confidence that he'll cut back on spending.
So who really runs the show? Here's a hint: Berlusconi is on his way out.
Kathy Jones: When you run up a lot of debts, you're beholden to the people who loan you the money. That's why bond investors are so vigilant. They want to see a clear path towards getting repaid.
That's Kathy Jones, a fixed income strategist with Charles Schwab. A lot of people don't think about the bond market, even though it is twice the size of the stock market. You may picture bond investors as a bunch of guys in suits yelling at computer screens. But they're more like old-school gumshoe detectives: beetle-browed, suspicious, always on the lookout for a deadbeat.
Jones: Bond investors are skeptical. They see the glass as half-empty, not half-full.
When bond investors exercise their power over governments, like they did today with Italy, they're called bond vigilantes. Here's Guy Lebas, a fixed-income strategist with Janney Montgomery Scott.
Guy Lebas: A bond vigilante is basically an individual or a group of investors who try to force policy actions by selling their holdings of bonds.
But just like detectives, they look at the facts: They don't act because of preferences or grudges. Kenneth Orchard, a senior credit analyst with T. Rowe Price, explains their motivation.
Kenneth Orchard: They're not going to invest in a particular country because it is in the best interests of Europe or Italy, because that is not their primary duty. Their primary duty is to the clients.
The good news for Italy is that it's in better financial shape than Greece. But until it gets a leader the market trusts, it will have to keep paying higher interest rates.
In New York, I'm Heidi Moore for Marketplace.