Hedge fund titan Ken Griffin says Japan's bond-market rebellion is a warning sign that the US needs to shape up its finances

• Citadel chief Ken Griffin thinks the US got a big warning from Japan's bond market this week.
• Japanese bond yields hit a record high as investors fretted over the nation's growing deficit.
• The same dynamic could play out in the US if it doesn't get its finances in order, he said.

The bond vigilantes could make a comeback soon.

That's the big message Citadel CEO Ken Griffin thinks the US got this week.

Speaking to Bloomberg on the sidelines of the World Economic Forum on Wednesday, Griffin pointed to the sharp sell-off in Japan's bond market as investors balked at a potential pause on food taxes, a policy proposal that caused the nation's 40-year government bond yield to hit a record high.

That dynamic could play out in the US if the fiscal situation doesn't improve, the hedge fund icon warned.

"I actually think there's an explicit warning that if your fiscal house is not in order, the bond vigilantes can come out and retract their price," Griffin said.

Bond vigilantes are a hypothetical group of investors who stage a sell-off in bonds to pressure the government to be more fiscally responsible. When worries begin to fan over inflation or rising debt levels, the selling pressure causes bond yields to rise, which can influence lawmakers to turn their hand to more macro-friendly policies.

Worries about growing deficits in the US have already led long-end yields to rise in recent years, with stock and bond prices beginning to move in tandem, Griffin noted. He called the trend "particularly troubling" for a few reasons:

1. Bonds become a less effective hedge. Bonds typically trade inversely to stocks, which is why investors have included them in their portfolios, Griffin said. Yet, in recent years, market volatility has impacted both stocks and bonds.
2. Concerns are rising over the US's ability to make good on its debt. "If US Treasurys are viewed as being at risk because the United States is not seen as being creditworthy, then bonds will move together in price," Griffin said.
3. Borrowing costs throughout the economy will rise, thanks to higher yields, he added.

"So mortgage rates will be higher. The cost for us to finance our deficits will be higher," Griffin said. "I think that what happened in Japan is a very important message to the House and to the Senate: You need to get our fiscal house in order," he added.

Bond investors have long been concerned about rising deficits in the US, but fears about another bond market revolt have spiked in recent weeks as investors take in fresh geopolitical tensions and a slew of new policy initiatives from President Donald Trump.

Most notable are the president's push to make housing more affordable and his earlier proposal that he could impose new tariffs on Europe if Greenland weren't soon up for sale. Though the tariffs have been called off, both initiatives are believed to stoke inflation, which weighed on the demand for US bonds.