The term “bond vigilantes” was famous coined by Wall Street veteran Ed Yardeni in the 1980s, referring to traders who protested massive deficits by selling off bonds to push yields higher. 

In a note published Wednesday, Yardeni, who is president of Yardeni Research, and Eric Wallerstein, the firm’s chief markets strategist, wrote that the vigilantes are voting early and pointed to the 10-year Treasury yield soaring by 63 basis points to 4.25% since the Federal Reserve announced a half-point rate cut at its meeting last month.

“In exit polls, the Bond Vigilantes are saying they are voting against Fed Chair Jerome Powell’s dovish monetary policy because the economy is running hot, and the Fed’s premature 50bps rate cut on September 18 raises the risk that it will overheat,” they said.

Treasury yields tumbled ahead of the first rate cut as investors looked for an aggressive easing cycle to match the aggressive tightening cycle. Since the Fed meeting, however, they’ve staged a big reversal.

Sentiment has turned so much that some Wall Street forecasters have warned that the central bank may even pause on further cuts. That’s as Fed officials and economic data have dampened optimism for lots of easing.

In their note, Yardeni and Wallerstein also attributed recent market moves to the outlook for federal deficits, which have ballooned recently and hit $950 billion in the fiscal year that ended Sept. 30, up 35% from the prior year due mostly to higher rates.

“The Bond Vigilantes may also be voting against Washington, figuring that no matter which party wins the White House and the Congress, fiscal policies will bloat the already bloated federal government budget deficit and heat up inflation,” they explained. “The next administration will face net interest outlays of over $1 trillion on the ballooning federal debt.” 

Budget watchdogs have warned on the exploding federal deficit. While it will expand under either Donald Trump or Kamala Harris, the Penn Wharton Budget Model and the Committee for a Responsible Federal Budget have said Trump’s policies would produce a much deeper hole.

That’s as the former president has teased a range of tax cuts and even eliminating income taxes altogether. Meanwhile, his vow to hike tariffs across the board is also widely seen as inflationary because companies typically pass along the added costs to consumers in the form of higher prices.

With Trump gaining in the polls, his policies that are expected to stoke inflation and widen deficits are increasingly getting priced in the bond market, which sees more upward pressure on Fed rates and yields as a flood of fresh Treasury bonds will cause investors to demand higher returns.

In addition to the spike in Treasury yields, Yardeni and Wallerstein highlighted other developments in financial markets, including higher federal funds futures, rising inflation views via the 10-year TIPS rate, the stronger dollar, and gold’s 33% year-to-date surge.

Gold has emerged as an attractive hedge against rising inflation, profligate fiscal policies, and geopolitical instability.

“Investors are buying up precious metals to protect their portfolios from all the above risks,” they wrote. “The foreign central banks of the Axis of Evil are building their gold reserves to skirt potential financial sanctions in the future.”

While bond vigilantes had appeared to be dormant for years, especially as the Fed kept rates low, Yardeni said last year that they were back and “saddling up” again with federal deficits on their agenda.

Despite Wall Street heavyweights like JPMorgan CEO Jamie Dimon sounding the alarm on U.S. deficits and debt, neither Trump nor Harris has made it a priority on the campaign trail. That may give bond vigilantes a bigger voice on the issue.

The perceived power of bond vigilantes was famously illustrated in the early 1990s, when US yields jumped as investors dumped Treasurys amid fears about federal deficits in what became known as the Great Bond Massacre.

James Carville, who was an adviser to President Bill Clinton at the time, mused that he would like to be reincarnated as the bond market: “You can intimidate everyone.”