Wall Street veteran Ed Yardeni is pushing back against the increasingly dire warnings about U.S. government debt from some of finance’s most prominent voices, arguing that the bond market’s own signals suggest no immediate crisis is brewing.

The Yardeni Research founder said in a note this week that investors who heeded the persistent pessimism from JPMorgan Chase CEO Jamie Dimon and Bridgewater Associates founder Ray Dalio have paid a steep price. Over the past three years, the S&P 500 has surged roughly 75%, as tracked by the SPDR S&P 500 ETF Trust (SPY), even as long-term Treasury yields climbed to levels not seen in two decades.

“Anyone who has followed their consistently pessimistic outlook over the past few years has missed a huge rally in the stock market,” Yardeni said.

Dimon warned in May that a “crack” was coming in the bond market. Dalio published a book in June arguing the U.S. debt position has reached “a point of no return” and is approaching a “death spiral.” Total public debt surpassed $40 trillion in August, and the 30-year Treasury yield remains above 5% in September.

Yet Yardeni’s own stress gauge is not flashing. His framework hinges on a concept he coined in July 1983: the bond vigilantes, or investors who impose discipline on governments by demanding higher yields when fiscal policy deteriorates.

The test is narrow. “The Bond Vigilantes tend to be on the loose when the 10-year US Treasury bond yield exceeds nominal GDP. The yield is currently well below nominal GDP,” he said. Nominal growth ran at 6.56% in the second quarter, against a 10-year yield near 4.60% in July.

He also noted the 10-year yield has held within a 4.00% to 5.00% band, a range that prevailed from before the 2008 financial crisis through the pandemic. “We’ve contended that this range is the old normal,” Yardeni said, treating it as evidence the economy is functioning rather than breaking.

The argument ultimately comes down to one number: 5%. As long as the 10-year yield stays below nominal GDP, he sees little evidence that bond investors are forcing Washington to pay an unsustainable price. But the 10-year is approaching that threshold while the 30-year has already moved above it, making 5% more than a psychological marker. If yields break above it while nominal growth holds near current levels, investors may start demanding a larger premium to hold long-term U.S. debt.

Two Backstops

Yardeni outlined two reasons the range should hold. The first is the Treasury. He said Secretary Scott Bessent has already moved to keep yields from rising, and if the 10-year reaches 5.00%, he expects Bessent to sell more short-dated Treasury bills and use the proceeds to buy back longer-dated bonds. Janet Yellen pursued a similar strategy in 2023 and it worked, he noted.

The second is the Federal Reserve. Yardeni said Chair Kevin Warsh has committed to restoring price stability, and that if inflation stays stubborn, the Federal Open Market Committee will probably raise rates in September. The logic: hawkish action now could mean calmer markets later.

The firm acknowledged the fiscal picture is deteriorating. Net interest outlays have climbed above $1 trillion, on par with defense spending, and the deficit is running near 6% of GDP, a level usually associated with recessions. But Yardeni’s conclusion is that the reckoning Dimon and Dalio warn about is not yet at hand.

“We’ll worry about the government’s debt when the Bond Vigilantes do,” the firm wrote.