The bond vigilantes aren't going away despite the latest Treasury rally, as America's $33 trillion debt pile will keep growing, market vet says

"Just because we had a tremendous rally in the bond market last week, that doesn't mean that problem has gone away."

• Vigilantes in the bond market are here to stay as debt concerns persist, Ed Yardeni said.
• The market veteran pointed to growing interest payments on the US's $33 trillion debt balance.
• "Just because we had a tremendous rally in the bond market last week, that doesn't mean that problem has gone away."

Bond market vigilantes are here to stay as the US's growing debt pile is too concerning, according to market veteran Ed Yardeni.

The Yardeni Research president pointed to the recovery seen in the fixed income market last week as the US Treasury announced its refunding plans over the next quarter.

The US plans to issue a less-than-expected $776 billion of government bonds through the end of the year, and sales of longer-dated bonds were trimmed too.

That quelled some fears over the growing mountain of US debt, causing the yield on the 10-year US Treasury ease to around 4.4% Friday evening. But bond vigilantes — investors who have orchestrated sell-offs in the bond market to press lawmakers for smaller deficits — aren't done, Yardeni warned. 

"They're not necessarily done voicing their concerns about the debt and the deficit. Just because we had a tremendous rally in the bond market last week, that doesn't mean that problem has gone away," Yardeni said in an interview with CNBC on Monday.

That's because a smaller-than-expected Treasury supply doesn't change the fact that the US debt is still piling up — a major problem as markets expect interest rates to stay higher for longer.

That could push up the costs of servicing the US debt to a new record high by 2025, per an estimate from Goldman Sachs.

"Janet Yellen could finance everything in the bill market and hope the short-term rates go down rather than go up and stay high. But the reality is, one of the most disturbing things about the deficit and the debt is that it's compounding as interest rates have gone up," Yardeni added. "That's not going to go away, and they're going to have to continue paying their interest." 

Net interest payments on the US debt currently amount to around 1% of US GDP, but that could balloon to 6.7% within the next 30 years, according to a projection from the Congressional Budget Office. Meanwhile, US debt held by the public as a share of GDP could nearly double and hit 181% of GDP by 2053.