But a few weeks later, a more muted version played out in Germany after Chancellor Merz proposed big defence and infrastructure spending beyond typical debt limits. Yields ticked up.

Three observations are appropriate to make now.

First, bond vigilantes appear to have finally arisen from their long nap.

Second, despite the profligate manner in which governments worldwide have spent and accrued debt over the last few decades, there remains some upper limit on how much fiscal mess bond investors are willing to bankroll.

Third, it may be time to ponder the question many investors have actively avoided because it is such a headache to consider.

What if bond vigilantes come for the U.S.?

Many investors avoid this question. America, they argue, is America, the world’s strongest economy and issuer of the reserve currency. It won’t be easily dislodged. Besides, if the dollar fell and yields soared, the fallout would be too incomprehensible to imagine.

But low odds aren’t the same as an impossibility, and scenarios being potentially painful is the best reason to confront them. Today, there are three reasons this one deserves attention.

First, America’s fiscal position has long been poor and it’s gotten worse.

Second, many of Trump’s policies — including sweepingtariffs, floating a debt restructuring, and the proposed tax legislation advancing through Congress, which could add US$1 trillion to US$2 trillion to the federal deficit over the next decade — look likely to worsen the fiscal outlook and/or rattle bond investors.

Third, bond markets have been acting odd lately. With all the uncertainty and volatility in stocks, this should be a clear “safe haven” moment. Instead, U.S. Treasuries are selling off.

All this is raising the odds of something unwanted: a bond vigilante showdown.

An American standoff with vigilantes could be either performative or nasty. The consequences — to Americans, to markets, to the world — would depend heavily on which one unfolds.

A nasty clash would resemble the British experience, but with U.S. leadership refusing to back down. This would be the “let them eat cake” moment: yields would spike, the administration would inadequately respond, bondholders would lose even more confidence, yields would spike further, thedollar would fall, thereby spooking everyone now actively paying attention and a full-blown crisis would eventually be on everyone’s hands.

This scenario is a bit like the asteroid that National Aeronautics and Space Administration (NASA) recently detected as being on a low-probability collision course with Earth (for a while there, they were giving this a three per cent chance). Those are low odds, but seriously destructive should it occur.

More likely is a performative standoff, echoing the 1990s’ Clinton era. Vigilantes call the administration’s bluff. The administration, unwilling to play chicken, would back down and implement the fiscal changes needed to restore confidence.

Yes, even Trump would be forced to yield.

Markets would reel — bonds and equities alike — but ultimately stabilize. The world would move on, bruised but intact.

Of course, a standoff could be avoided altogether if politicians prioritized long-term national interests over short-term personal gain. Your guess is as good as anyone’s on how likely this is.

For investors, recent events are a warning that market forces can, and do, exert control when governments push too far with excess. Bond vigilantes appear to be back, or at least, circling on the sidelines.

As Trump and his administration walk the fiscal tightrope, it may be bond vigilantes — quiet, often overlooked — who decide America’s financial fate. People obsess over stocks. History shows, however, the bond market is the ultimate check on power.

It is the real kingmaker.

Kara Lilly, CFA, is a senior investment strategist at Focus Wealth Management and Michael Kosmalski, CFA, is a managing director and portfolio manager there.