US Treasury yields are once again closing in on the critical 5% threshold, reigniting market caution over the so-called "bond vigilantes."

Yardeni Research stated on Tuesday that while investor concerns over rising US government debt continue to intensify, there is currently no need to trigger panic. The team led by chief strategist Ed Yardeni noted in a research report:

"We haven't pressed the panic button yet, but we are closely monitoring whether bond vigilantes will do so."

The 10-year US Treasury yield is currently at 4.73%, hovering near a one-year high. Yardeni Research maintains its previous stance that Treasury yields should trade within a normal range of 4% to 5%, which would not pose a substantial negative impact on the economy or corporate earnings. However, the firm emphasized that as yields approach the upper end of this range, the level of alert has been significantly elevated.

Triple Pressure Pushes Yields Higher

Several factors are converging to drive Treasury yields upward.

The first is fiscal pressure. US government spending continues to expand, with interest payment costs reaching record highs, intensifying market doubts about fiscal sustainability.

The second is inflation risk. Yardeni Research pointed out that if oil prices rise again due to a prolonged Iran war, inflationary pressures would further accumulate and reinforce expectations of Federal Reserve rate hikes. The firm also questioned whether the Fed can maintain sufficient vigilance over inflation amid a potential oil price rebound.

The third is a surge in corporate borrowing. The artificial intelligence boom has driven tech giants and hyperscale cloud companies to raise substantial funds, placing Washington and Silicon Valley in competition for the same capital pool and exacerbating supply-demand pressures in the bond market.

2023 Experience May Offer a Reference Point

Yardeni Research cited the summer of 2023 experience as a historical reference for the current situation.

The firm noted that in 2023, the 10-year US Treasury yield surged from 4% to 5% within several months, and that level ultimately attracted a wave of buyers into the market. Based on this, the firm believes that if yields approach 5% again, a similar buying opportunity could emerge.

The firm's strategists wrote:

"We maintain our view that Treasury yields should continue to trade within the normal 4% to 5% range, without adversely affecting the economy or corporate earnings."

Spillover Effects Reach Global Markets

The spillover effects of rising Treasury yields are spreading worldwide. Yardeni Research stated that since US Treasuries serve as the benchmark for global debt pricing, higher US interest rates directly push up costs for sovereign debt, corporate bonds, and mortgages around the world. Meanwhile, higher US rates attract global capital flows into the dollar, complicating Japan's efforts to prevent the yen from weakening past 160 per US dollar.

The term "bond vigilantes" was coined by Ed Yardeni himself in the 1980s to describe investors who protest government inflationary policies by selling off Treasuries. This behavior drives down bond prices and pushes up yields, thereby forcing authorities to return to fiscal discipline.

Globally, bond vigilante activity has noticeably increased in recent months. Yardeni Research pointed out that this phenomenon indicates market concerns over government debt are not limited to the United States. The UK and Japan, with debt burdens particularly heavy relative to their economic size, have seen bond vigilantes especially active in these markets.

The 30-year US Treasury yield has recently touched its highest level in nearly two decades, reflecting deep investor anxiety over long-term fiscal prospects. Yardeni Research stated that while the panic button has not yet been pressed, monitoring efforts have indeed been strengthened—every basis point at the upper end of the range is accumulating new variables for the market.