You could call them the debt market’s watchdogs. Bond vigilantes—a term coined by economist Ed Yardeni in the 1980s—are investors who push back against government overspending by withholding demand for U.S. debt. Their message: stop running massive deficits or we’ll make it more expensive for you to borrow.
There’s no formal club or coordination—just a critical mass of institutional investors acting on shared instincts. When fiscal policy looks reckless, they retreat from the bond market. That forces the government to raise interest rates to attract buyers, which in turn sends bond yields higher and the value of older, lower-yielding bonds lower. The result is a kind of buyer’s strike: not organized, but widespread.
Right now, we’re seeing this play out. With a new tax bill threatening to widen the deficit—and rate cuts delayed—bond investors are staying on the sidelines, waiting for better terms. It’s not ideological. As Yardeni famously wrote in July 1983, “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 markets.”
Why the Budget Bill Has Bond Markets on Edge
The non-partisan Tax Foundation estimates that the House-passed bill “would increase long-run GDP by 0.6% and reduce federal tax revenue by $4.1 trillion from 2025 through 2034.” Key provisions—like blocking tax hikes for 62% of taxpayers, as scheduled under the 2017 law, are projected to deepen the fiscal gap. For bond vigilantes, that’s a red flag.
The vigilantes are known worldwide. The accounting and advisory firm William Buck, in its latest report, noted: “The United States fiscal deficit is in the spotlight and bond vigilantes are back.” Sydney, Australia–based Besa Deda, chief economist at William Buck, told Worth that interest rates are high and will remain that way or go higher for some time. She added that bond markets will continue to be volatile. “The passage of the latest big, beautiful spending bill has intensified concerns over the sustainability of the U.S. fiscal position. There’s also concern about inflation risks. The U.S. Federal Reserve has remained on pause, and expectations for rate cuts have been pushed back amid uncertainty over the inflationary impact of potential tariffs.
The U.S. government deficit has increased significantly since the pandemic, and the new tax bill could substantially contribute to the deficit. The vigilantes and other investors could force the government to pay up for selling debt, forcing rates higher. For investors seeking yield, this could present an opportunity.
The Mar-A-Lago Accord and Market Jitters
One controversial idea resurfacing is the so-called Mar-A-Lago Accord. According to Dr. Desmond Lachman, senior fellow at the American Enterprise Institute, the Trump administration is reportedly considering a plan to require foreign holders of U.S. Treasuries to exchange their holdings for 100-year or zero-coupon bonds—an effort to secure long-term funding.
Rebecca Patterson, a senior fellow at the Council on Foreign Relations, wrote in a March 2025 Substack post that the administration wants to simultaneously lower yields, weaken the dollar, increase tariffs, and make the U.S. a more attractive destination for investment. As Patterson noted, the plan “may necessitate short-term economic and financial-market pain.”
Lachman sees warning signs in gold prices. “The price of gold has risen about 30% since the start of the year,” he says. “That’s not good news. It shows that people are getting nervous. Investors see that the United States is not serious about its public finances, and it is on its way to higher inflation. They’re beating up on the foreigners, and they’re beating up on the hand that is feeding them.”
He adds that the Fed has reduced short-term interest rates by about 100 basis points since September 2024, yet long-term rates have risen—an unusual divergence. “They are playing with fire, because markets may just wake up one day and say, this is nuts, it doesn’t work. And once it starts, then you are piling into the trade.”
Rising Yields Change the Landscape for Investors
Long-term Treasury yields have jumped. As of May 2025, the 10-year U.S. Treasury was paying a 4.49% yield-to-maturity—a level only seen twice since October 2007. This shift has meaningful implications for portfolio construction. Instead of scraping by with 1% to 2% returns, income investors are now seeing yields in the mid-4% range.
Want to go further out on the curve? The 30-year Treasury has traded above 5%, a rate not seen since 2006, aside from a brief blip in 2023. This isn’t just a U.S. trend: Japan’s 10-year bond rose from -0.3% in mid-2019 to 1.4% in April 2025.
How to Invest: Yield Without Excess Risk
In this environment, short-duration income securities remain a smart bet. U.S. Treasuries, backed by the full faith and credit of the government, remain the highest-quality option—and interest is exempt from state and local taxes.
Global X’s short-term T-Bill ETF (CLIP) holds Treasuries that mature in 1–3 months. It functions as a cash substitute, though it does carry some market risk as rates fluctuate. As of July 10, its 30-day SEC yield was 4.19%. Another option: iShares’ 0–3 Month Treasury Bond ETF (SGOV), with similar yield and duration.
For investors looking to lock in current yields, F/m Investments offers single-maturity Treasury ETFs that track the latest on-the-run securities. When new Treasuries are issued, the funds roll into them, locking in the yield. On July 11, F/m’s 3-Month Bill ETF (TBIL) yielded 4.31%; its 30-Year ETF (UTHY) yielded 4.93%. But reaching for yield means accepting more market risk.
Short—and Long—Duration Securities from iBonds
iBond ETFs hold diversified portfolios of bonds that mature in the same year. They’re popular for building bond ladders and trade like stocks. As of mid-July, the iShares December 2027 Term Treasury ETF (IBTH) had a 30-day yield of 3.86%; the Corporate iBond ETF (IBDS) was at 4.36%; and the High Yield iBond ETF (IBHG) offered 6.10%.
But higher yield comes with higher risk. IBDS is 52.2% BBB-rated (the lowest investment grade); the rest is higher. IBHG, by contrast, is nearly half BB-rated, with the remainder lower. Moody’s warns that defaults remain elevated: the average risk of default for U.S. public companies hit 9.2% at the end of 2024, and that trend is expected to persist.
In volatile times, bond vigilantes may dominate the headlines—but smart investors can still find pockets of safety and yield. Just stay nimble, stay short, and read the fiscal signals.
