Trump's Iran War Just Triggered A Second Shockwave — This One Is In The Bond Market

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any perceived leniency on inflation and forcing a wholesale rethink of where interest rates are headed in 2026.The key question now is: Are the vigilantes right again — or has the bond market overshot, pricing a hawkish shock that will never come?The term was coined by economist Ed Yardeni, president and chief investment strategist at Yardeni Research, in the 1980s to describe bond market investors who enforce fiscal and monetary discipline by selling government bonds — driving yields higher — when they believe a central bank or government is being too loose with inflation or spending.Don't Miss:This 2-Minute Tool Matches Investors With Financial Advisors Based on Their GoalsSome of the biggest financial mistakes come from going it alone—this short quiz connects you with a vetted advisor who can offer a second opinion on your strategyThink of them as the market’s self-appointed inflation police: when they mobilize, borrowing costs rise for everyone, from governments to corporations to households with mortgages.In his latest morning briefing on Monday, Yardeni confirmed that the vigilantes are mobilizing for both the inflationary consequences of the Iran war and the larger government deficits needed to fund defense spending.The Strait of Hormuz — through which roughly 20 million barrels per day of crude oil and approximately one-fifth of global liquefied natural gas trade flows — remains effectively closed to all commercial vessels.The result, Yardeni writes, is “the worst global energy shock ever.”Earlier this month, Yardeni Research increased its probability of a U.S. recession and a bear market in stocks to 35%, up from 20% previously, warning of a potential “1970s-style stagflation scenario” that included two recessions in that decade.“The major central banks haven't responded yet, but the Bond Vigilantes are taking matters into their own hands and tightening credit conditions,” Yardeni wrote.The scale of the repricing over just four weeks of war is staggering.The U.S. 2-Year Treasury yield has surged approximately 50 basis points month-to-date to 3.86% — the largest one-month increase since October 2024.Think of the 2-year yield as the bond market’s verdict on the Fed: it reflects, in real time, where investors believe interest rates will sit over the next two years, making it one of the most watched signals on Wall Street.Terms and Privacy PolicyPrivacy & Cookie SettingsMore InfoTrending tickersNKE NIKE, Inc. 44.80 -8.02 (-15.18%)RH RH 108.52 -31.31 (-22.39%)BA The Boeing Company 207.42 +8.39 (+4.22%)INTC Intel Corporation 47.87 +3.74 (+8.47%)LLY Eli Lilly and Company 957.07 +37.29 (+4.05%)PortfolioSign in to access your portfolioSign inTop gainersRGC Regencell Bioscience Holdings Limited 35.60 +10.17 (+39.99%)KOD Kodiak Sciences Inc. 42.88 +4.76 (+12.49%)PVH PVH Corp. 77.65 +7.89 (+11.31%)FSLY Fastly, Inc. 32.13 +3.07 (+10.56%)CAR Avis Budget Group, Inc. 161.47 +15.80 (+10.85%)Top losersRH RH 108.26 -31.56 (-22.57%)AXTI AXT, 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