The "bond vigilantes" are back, according to Newsmax Finance Insider Ed Yardeni, the economist and investment strategist who coined the term in 1983.
The name refers to investors “who demand higher yields for government bonds as compensation for a rise in inflation that is expected thanks to stimulative government policies. As bond yields rise, it becomes more difficult for the government to actually enact these policies — potentially tamping down on actual inflation,” CNBC.com explained.
"If the fiscal and monetary authorities won't regulate the economy, the bond investors will," Yardeni wrote at the time. "The economy will be run by vigilantes in the bond market."
The term been revived as Treasury yields have surged in reaction to Donald Trump's surprise victory in the presidential election. Most have pegged the rise on Trump's proposals for new infrastructure funding, which some see as likely leading to economic growth and a spike in inflation, CNBC explained.
The bond vigilantes "are back," Yardeni told CNBC.
As for Trump’s campaign promises, they may form a perfect inflation recipe.
"We might have trade protectionism, we might have fewer workers if immigration is cut back, and all these things are inflationary," Yardeni said.
"I would think that what's really changed is that it's very unlikely we're going to be facing deflation or still lower inflation, and very likely we're going to see inflation moving higher."
Yardeni isn't alone in his cautionary advice.
Jeffrey Gundlach, chief executive officer of DoubleLine Capital, sees a rise in bond yields that could lift the yield on the 10-year Treasury note to 6% in the next four or five years.
Trump’s pro-business agenda is “unfriendly” to bonds, Gundlach says, as it could to lead to stronger economic growth and renewed inflation. Gundlach expects Trump to “amp up the deficit” to pay for infrastructure projects and other programs. That could produce an inflation rate of 3% and nominal growth of 4% to 6% in gross domestic product, said Gundlach, who oversees more than $106 billion in assets at Los Angeles-based DoubleLine.
“If nominal GDP pushes toward 4%, 5%, or even 6%, there is no way you are going to get bond yields to stay below 2%,” he told Barron’s.
For his part, fellow Newsmax Finance Insider Hans Parisis doesn't really see a safe place to invest and has urged investors sit on their cash.
"Investors could do well not to overlook the fact that the financial community is in reality isolated from the real economy. It is off the grid from many people in the real world," Parisis explained. "Cash in today’s abnormal world is not as abnormal and stupid as many want you to believe," he said. "Never forget, when prices go down (which is today the case with many investment vehicles), “cash” or cash-equivalents become more valuable."