The bond vigilantes are back, and they're not impressed with Washington's fiscal position.

Treasury auctions for two-, five-, and seven-year notes drew unexpectedly weak demand last week, forcing yields higher and reigniting fears about the federal government's ability to refinance $10 trillion in maturing debt over the next 12 months. The 2-year yield exceeded 4.0% while the 10-year surpassed 4.4% this week—levels not seen since late 2024.

The phrase "the bond market remains undefeated" is making the rounds again on Wall Street trading floors, a reference to the market's historical ability to discipline governments with unsustainable fiscal policies. The warning signs are unmistakable: the MOVE index tracking Treasury volatility spiked to levels "consistent with price instability and policy dysfunction," according to bond market analysts.

Joseph Brusuelas, chief economist at RSM, captured the concern succinctly in comments to Fortune: "Investors' concerns include an unsustainable American fiscal position, rising inflation risk and a growing uncertainty about war."

Those three factors are now converging at precisely the wrong moment. The Pentagon is seeking $200 billion from Congress for Iran operations, with military munitions depleted and equipment damaged. The budget deficit is on track to hit $2 trillion annually. And the government must now compete for capital in a market facing $14 trillion in investment-grade debt supply in 2026, including $2 trillion in corporate bond issuance.

For the average American, this isn't abstract Wall Street drama. Treasury yields directly impact mortgage rates, with 30-year fixed mortgages now approaching 7.5%. Business loans are more expensive, squeezing small companies already dealing with higher energy costs. Corporate borrowing costs are rising, which eventually flows through to consumers via higher prices or reduced investment in jobs and growth.