Donald Trump’s ascendancy has put the finance world’s bond vigilantes, who were already stirring after years of inactivity, back in the saddle. Traders and money managers are gearing up to protect their money against the dangers of profligate government spending and accelerating inflation, as Trump pursues a campaign agenda that relies on public borrowing. Government funding costs are rising as investors demand higher yields for lending to nations by buying their bonds.
The phrase was coined in the early 1980s by economist Ed Yardeni, who spent a quarter of a century on Wall Street at firms including Deutsche Bank, Prudential Securities and E.F. Hutton and now runs his own financial consultancy firm. In a July 1983 paper, "Bond Investors Are the Economy’s Bond Vigilantes," he wrote, "So if the fiscal and monetary authorities won’t regulate the economy, the bond investors will. The economy will be run by vigilantes in the credit market." The 10-year Treasury yield was 11.5 percent when he made his comments; within less than a year, it had climbed to almost 14 percent.