Yellen Abandons Effort to Reverse Trend as Deficit Reduction Seen as Hopeless, Delays to Gain Political Leverage for Midterm Elections

BlockBeats News, August 25th. Fox Business reporter Charlie Gasparino posted that informed Wall Street executives revealed that Bassnet's true goal is to "make bond shorts tremble in awe," artificially raise bond prices through treasury buybacks, adjusting debt issuance structures, and even canceling ultra-long-end varieties such as the 20-year bond, triggering a massive passive rebound of CTA trend funds. They aim to push the 10-year yield to around 4.3% before the midterm elections.

The latest data shows that CTA and trend-following strategy funds' global bond short positions are nearing historical extremes, measuring around $155 million in DV01. If prices rise by 2 standard deviations within a month, the total repurchase and re-buying scale could reach $150 million DV01, setting a new all-time high record. Bassnet, a former trader, is not looking to reverse the yield trend in the face of hopeless deficit reduction. Their core strategy is to buy time, aiming to precisely exert pressure on the market's technical weaknesses and craft a narrative of declining rates before the election window.

However, Bassnet's intervention has been limited in effectiveness so far, with US bond yields continuing to rise. It was only when the Treasury Department revealed its intention to use up to $954 billion from the TGA for support that yields reluctantly edged down slightly, but the effect was short-lived. Critics point out that the repurchase scale is a drop in the bucket compared to the massive deficits, total debt, and high inflation.

Deeper friction is occurring between the Treasury Department and the Federal Reserve. Bassnet's intervention has deeply displeased Fed Chair Powell, leading to a significant cooling of the Fed's desire to reduce its balance sheet. Market observers believe this has effectively created some form of linkage between the Treasury Department's and the Fed's balance sheets. Analysis suggests that Bassnet's operations before the election could indeed trigger a self-reinforcing short-covering positive feedback loop, pushing the 10-year yield towards 4.3%. However, after the midterm elections, the structural upward pressure on yields and the gravitational pull of stock market valuations may return in a more intense manner.