With U.S. Debt Soaring, Wall Street’s ‘Vigilantes’ Are Back. Others ‘Yawn.’

Typically, the esoteric inner workings of finance and the very public stakes of government spending are viewed as separate spheres.

And bond trading is ordinarily a tidy arena driven by mechanical bets about where the economy and interest rates will be months or years from now.

But those separations and that sense of order changed this year as a gargantuan, chaotic battle was waged by traders in the nearly $27 trillion Treasury bond market — the place where the U.S. government goes to borrow.

In the summer and fall, many investors worried that federal deficits were rising so rapidly that the government would flood the market with Treasury debt that would be met with meager demand. They believed that deficits were a key source of inflation that would erode future returns on any U.S. bonds they bought.

So they insisted that if they were to keep buying Treasury bonds, they would need to be compensated with an expensive premium, in the form of a much higher interest rate paid to them.

In market parlance, they were acting as bond vigilantes. That vigilante mindset fueled a “buyers’ strike” in which many traders sold off Treasuries or held back from buying more.