The "bond vigilantes" are back, according to Ed Yardeni, the economist and investment strategist who coined the term in 1983.
The gunslinging label 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.
Naturally, this lower inflation is good news for the bondholders, who, being promised a fixed amount of money, fear a decrease in the real-world value of that money.
"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 has cropped up again in recent days, 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.
The bond vigilantes "are back," Yardeni said Thursday on CNBC's "Trading Nation. "
After years of being "buried" by central bank policies aimed at tamping down yields, including the outright purchase of bonds, the vigilantes "maybe they're coming back as zombies, the living dead," he quipped.
Of course, the reference to central banks points to another potential driver behind the recent bond move. Trump has stated his antipathy to easy-money policies, and if his appointments lead the Federal Reserve to become more hawkish, rates will have another reason to rise.
Meanwhile, when it comes to inflation, Yardeni points out that modern-day vigilantes may be onto something.
On top of fiscal stimulus, "we might have trade protectionism, we might have fewer workers if immigration is cut back, and all these things are inflationary," the strategist 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."
Interestingly, Trump boasted during his campaign that "I'm the king of debt. I'm great with debt. Nobody knows debt better than me."
But as Yardeni's heuristic makes clear, if the king of debt runs afoul of the kings of bonds, things could get pretty interesting.