According to the Zhichun Finance APP, US Treasury yields have soared again in recent weeks, putting pressure on the US stock market. Ed Yardeni, the most accurate Analyst on Wall Street and the economist and market strategist at Yardeni Research, attributes this to concerns from 'Bond Vigilantes' about 'reckless' monetary and fiscal policies.

Yardeni stated in a report published on December 28: 'Bond Vigilantes are sounding a strong alarm. They do not believe that the incoming US President-elect Donald Trump will uphold fiscal laws and order better than his predecessor. They have also lost confidence in Jerome Powell, who is responsible for monetary laws and order.'

It is reported that Yardeni coined the term 'Bond Vigilantes' in the early 1980s to describe investors who seek to influence government policies by selling bonds, or simply threatening to sell bonds.

US Treasury yields rose by 100 basis points.

As of December 27, the 10-year US Treasury yield, known as the 'anchor for global asset pricing,' has soared to 4.62%, an increase of 102 basis points from the 52-week low of 3.6% set on September 17. On September 18 local time, Federal Reserve Chairman Powell and other policymakers announced a 50 basis point rate cut, marking the start of a new round of interest rate cuts. The 2-year US Treasury yield, which is more closely related to the Fed's rate outlook, jumped by about 75 basis points.

After the Federal Reserve's substantial rate cuts, US Treasury yields increased due to better-than-expected economic data and growing market expectations that Trump will win the 2024 election.

Driven by Trump's election and the Federal Reserve's second interest rate cut, the yield on US Treasuries soared, reaching a short-term high slightly above 4.5% on November 15. Following Trump's nomination of hedge fund manager Scott Bessenet as US Treasury Secretary, yields then retreated. Bessenet called for policies to promote economic growth while keeping the deficit within 3% of GDP.

However, after falling to a 52-week low of 4.13% on December 6, the yield on 10-year US Treasuries surged again to the highest level in six months. This included a significant jump in yields on December 18 when the Federal Reserve cut rates for the third consecutive time, with a total reduction of 100 basis points. The surge in US Treasury yields triggered a sell-off in the stock market, with the S&P 500 Index dropping nearly 3% and the Nasdaq Composite Index falling by 3.6%.

Yardeni stated, "The Federal Reserve seems to be stimulating an economy that does not need stimulating."

As the stock market plummeted, the yield on 10-year US Treasuries fell by 7 basis points on Monday to 4.55%, continuing the decline from last Friday.

Questioning Trump's policies.

Meanwhile, there are renewed doubts about whether the Trump administration's policies can control the deficit or inflation.

The co-leaders of the newly established Department of Efficiency in Trump's administration, Elon Musk and Vivek Ramaswamy, called for a $2 billion cut in government spending but did not specify a timeline or concrete measures.

Yardeni stated, "Bond vigilantes do not believe that Trump's 2.0 policies will reduce the federal deficit, and they are skeptical that some of these policies could lead to inflation, such as Trump's plans to raise tariffs, expel illegal immigrants, and cut taxes."

Powell and his colleagues share the same concerns. Powell pointed out that the "policy uncertainty" related to Trump's policies is one of the reasons for the slow pace of further interest rate cuts.

The "dot plot" reflecting the Federal Reserve policymakers' forecast for the federal funds rate shows a rate cut of only 50 basis points for next year. The market expects only a 25 basis point cut in 2025, and it will take until May or June for the cut to happen.

The Federal Reserve's interest rate cuts theoretically provide new monetary stimulus or at least eliminate some monetary tightening policies. However, in reality, rising yields on USA government bonds push up mortgage rates and other borrowing costs, which will have an adverse effect on the economy.

The bull market in US stocks is expected to continue.

Rising yields on USA government bonds may also cause the Trump administration to focus on deficit control.

Yardeni stated: "We often say that we will only worry when bond investors start to worry about the federal deficit. This seems to be happening."

Yardeni still believes that by 2025, the yield on 10-year USA government bonds will be around 4.5%, fluctuating by 25 basis points, but it could also reach a long-term peak of 5%.

Yardeni has long been bullish on the USA economy and stock market, and he "has not turned bearish on the stock market." After a "correction/retracement," he expects the bull market to continue and believes that Trump 2.0 will make some progress on the deficit outlook.