Top Economist Says Trump Has Awakened the 'Bond Vigilantes' With Tariffs and Iran War as 10-Year Treasury Yield Surges to 19-Month High
Economist Steve Hanke said President Donald Trump’s tariffs, the Iran war, and renewed inflation pressure have helped bring the "bond vigilantes" back as U.S. Treasury yields surge.
Hanke Says Bond Vigilantes Are Back
"TRUMP’S TARIFFS, TRUMP’S WAR ON IRAN, AND AN US INFLATION GENIE OUT OF THE BOTTLE HAVE WOKEN UP THE BOND VIGILANTES. THEY HAVE COME OUT OF HIBERNATION," Hanke wrote on X.
Hanke has sounded the alarm before. Last month, he called rising money supply, tariffs and the Iran conflict a "deadly cocktail" and said the 10-year yield could rise another 50 basis points, leaving him "very bearish" on bonds.
The 10-year Treasury yield reached 4.81% on Wednesday, while the two-year hit 4.41%, its highest since January 2025. The 30-year Treasury yield remained near the 19-year high it hit in August.
Brent crude climbed toward $96 a barrel on Wednesday as renewed U.S.-Iran attacks added to inflation concerns. The 10-year Treasury strongly influences mortgage rates, meaning the selloff could push home-loan costs higher.
Inflation, Debt And Iran Lift Yields
Hanke’s diagnosis, however, is only part of the picture. Reuters said investors also point to mounting federal borrowing, resilient growth, expectations that the Federal Reserve may keep rates higher, weaker foreign demand for Treasuries and heavy corporate borrowing for AI infrastructure.
Charu Chanana, chief investment strategist at Saxo, said investors are demanding a higher premium for "inflation, fiscal risks and the sheer amount of debt coming to market," adding that a 5% 10-year yield looks increasingly plausible before buyers return.
Experts See Risks But Not Panic
Ed Yardeni, who famously coined the term "bond vigilantes," offered a less dire view. "We share the Bond Vigilantes’ concerns, but we aren’t convinced bond yields are, or will soon be, prohibitively high," he told Reuters.
However, the selloff does not yet resemble panic. Strategists at global financial services group Macquarie told the Associated Press that the selloff does not yet suggest excessive concern about U.S. sovereign default.
U.S. debt recently crossed $40 trillion, while the Congressional Budget Office projects a $1.9 trillion federal budget deficit for fiscal 2026. Treasury has doubled planned long-end bond buybacks to at least $4 billion per operation beginning Sept. 9.
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