Bank of America Hartnett warns: if the Treasury bond repurchase plan fails, risk assets will be under pressure

According to Jinse Finance APP, Bank of America Securities strategist Michael Hartnett has warned that if the US Treasury’s plan to curb long-term Treasury yields fails, the US dollar will face depreciation pressure and could trigger a wave of short selling against risk assets such as AI computing giants and private credit. This trend is likely to persist until the eve of the midterm elections in November.

Hartnett stated that if Treasury Secretary Scott Bessent “cannot bring the 30-year Treasury yield below 5%,” he expects the US dollar to weaken in the coming weeks, and leveraged assets such as mega-cap AI firms and private credit risk assets will face increased short-interest bets. He also noted that if the plan fails to achieve its intended effect, the financial sector as a whole is also at risk of being shorted.

Hartnett and his team believe the Treasury’s move to increase large-scale repurchases of long-term bonds is essentially a “quasi-quantitative easing” operation and represents the latest step in a series of “Bessent-style put options” aimed at tackling the funding threats for the US government and the AI industry. He wrote, “Policy panic aimed at ‘fixing’ the bond market should act as a support rather than push down Treasury yields.”

The US Treasury issued a statement on Wednesday, August 19, about the expansion of its buyback program, after the 30-year Treasury yield hit its highest level in nearly 20 years and the 10-year yield reached a high not seen since President Trump took office. Following the buyback announcement, yields briefly fell, but as concerns over the continued surge in US federal government debt lingered, bond prices surrendered most of their gains. On Friday, August 21, the 30-year Treasury yield hovered near 5.2%.

Bond market turmoil has already spilled over into equities. Due to renewed worries over bond market volatility, the S&P 500 Index has fallen 1.9% since Monday, August 17, likely ending its previous three-week winning streak.

For now, Bank of America’s bull-bear indicator still shows an “extreme bullish” signal. Citing EPFR data, strategists said that in the week ending August 19, funds focused on the US stock market attracted nearly $29 billion in inflows, marking the largest single-week inflow in three weeks. Meanwhile, outflows from the semiconductor sector have continued for a third week, with cumulative redemptions reaching $6.3 billion.