US Bond Yield Spike Sends Warning to ‘King of Debt’ Trump

(Bloomberg) -- Donald Trump’s sweeping win in the US presidential election set off a torrent of buy signals across Wall Street. There was, however, one notable exception.

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As traders sent assets from stocks to the dollar rocketing on optimism that a second Trump administration would be good for business and stoke an already strong economy, investors in the $28 trillion market for US government debt drove yields to the highest in months.

The selloff is a reminder from a powerful constituency: The so-called bond vigilantes are monitoring the self-described “King of Debt” as he claims an “unprecedented” mandate to carry out an agenda of tax cuts and tariffs.

By lifting interest rates, financial markets are indicating they will impose a penalty on policies they regard as likely to ignite inflation and swell the national debt. Higher borrowing costs could in turn filter into Trump’s economy, slowing growth and other markets.

“It’s a new day in America and a new day in the bond market,” said Ed Yardeni, the veteran strategist who coined the term “bond vigilantes” in the early 1980s to describe investors who sought to exert power over government policies by selling their bonds, or merely threatening to do so.

“The fact that Trump won with so much support gives him a tremendous amount of power not only here but on a global basis.” he said. “The bond market is rightly concerned about fiscal policy continuing to be stimulative with deficits already very wide.”

The 10-year Treasury yield, the risk-free benchmark that anchors more than $50 trillion in global dollar-denominated fixed-income securities, soared by almost a quarter point Wednesday to reach 4.48% at one point, the highest since July.

Yardeni is among investors who see it possibly touching 5% again, should Trump’s fiscal policies raise investors’ ire.

The US isn’t the only place where bond vigilantes are reappearing. They recently sought to impose discipline on the fiscal programs of France and the UK too. Meanwhile, in Germany, bonds tumbled Thursday on speculation about further debt sales after the government there crumbled.

The original bond vigilantes of the 1980s arose amid a period when the US had experienced a prolonged bout of unusually high inflation. Since then, they have turned up from time to time, including during former President Bill Clinton’s first term, when he tried to push through an ambitious domestic agenda.