Yardeni says bond vigilantes not yet a threat despite rising yields
Yardeni, who coined the term “bond vigilantes,” says the recent climb in sovereign bond yields is not yet likely to trigger a market sell-off, but he is watching the 10-year U.S. Treasury yield closely.
Sovereign bond yields have risen sharply, with the 30-year U.S. Treasury at about 5.3%, the German 10-year bund at a 15-year high and Japan’s 10-year note at a multidecade peak. The increase has pressured equities worldwide, though most major markets have limited losses; Europe’s Stoxx 600 slipped slightly, U.S. futures fell modestly, while Asian markets saw steeper declines, including a 2.5% drop in Japan’s Nikkei 225.
Ed Yardeni, president of Yardeni Research and originator of the “bond vigilantes” concept, told investors he is not “pushing the panic button” at present. He cautioned that his stance could change if the benchmark 10-year U.S. Treasury yield moves significantly above current levels.
"For now, we are sticking with our view that the US bond yield should continue to trade in a normal range of 4.00%-5.00%, without causing any adverse consequences for the economy and corporate earnings. Nevertheless, now that the yield is approaching the top of this range, we are monitoring the activities of the Bond Vigilantes more closely," Yardeni wrote to clients.
He added that a 5% yield would likely attract enough buyers, as seen in 2023, but highlighted ongoing concerns such as Federal Reserve policy and oil prices. The 10-year Treasury was around 4.73% on Tuesday and last exceeded 5% in 2023. The market will watch the Fed’s July policy minutes due on Wednesday for further clues on yield direction.