Fox Business Reporter Gasparino Claims Bessent Aims to Squeeze Bond Bears
Fox Business reporter Charlie Gasparino stated that informed Wall Street executives revealed Bessent's true goal is to "instill fear in bond bears" by artificially raising bond prices through Treasury buybacks, adjusting the debt issuance structure, and even eliminating 20-year bonds, triggering large-scale passive buybacks from CTA trend funds, aiming to push the 10-year yield down to around 4.3% before the midterm elections.
Latest data shows that global bond market short positions held by CTA and trend-following strategy funds are nearing historical extremes, measured at approximately $155 million DV01. If prices rise by 2 standard deviations within a month, the total buyback and reinvestment could reach $150 million DV01, setting a new historical record.
Bessent, a former trader, is focusing not on reversing the yield trend in the face of insurmountable deficit reduction but on buying time, hoping to exert precise pressure on market technical weaknesses to create a narrative of declining interest rates before the elections.
However, Bessent's interventions have so far had limited effect, with U.S. Treasury yields continuing to rise until the Treasury revealed it would use up to $954 billion from the TGA as support, causing yields to slightly retreat, but the effect remained short-lived. Critics argue that the buyback scale is minuscule compared to the massive deficit, total debt, and high inflation.
Deeper friction has arisen between the Treasury and the Federal Reserve, with Bessent's interventions causing Fed Chair Waller to express significant dissatisfaction, leading to a noticeable decrease in his willingness to reduce the Fed's balance sheet. Market observers believe this has effectively created a sort of entanglement between the Treasury and the Fed's balance sheets.
Analysts suggest that Bessent's actions before the elections could indeed trigger a self-reinforcing feedback loop of short covering, pushing the 10-year yield toward 4.3%. However, after the midterm elections, structural upward pressure on yields and gravity from stock market valuations may return more forcefully.
From a market mechanism perspective, the Treasury is pressuring CTA short technical positions through buybacks and adjustments to the debt issuance structure, with funds flowing from short covering to support the bond market. Event-driven interventions are boosting short-term bond prices, benefiting bulls and passive buyers from trend funds, while structurally short positions and long-term yield expectations are under pressure.
Source: Public Information
ABAB AI Insight
As a former trader, Treasury Secretary Bessent has previously attempted to lower long-term yields by expanding buybacks and issuing short-term debt. This latest revelation targets extreme CTA short positions, continuing his "technical intervention" style, similar to historical cases where the Treasury influenced curve shapes through operations.
In terms of capital flow, the Treasury is using buybacks and potential TGA funds to raise bond prices, motivated by the desire to create a narrative of declining interest rates before the elections and buy time. Resources are being funneled to bond market bulls through forced short covering, forming a closed loop from policy signals to position squeezing.
Comparing the impact of QE and distortion operations on trend funds in the 2010s, as well as recent Treasury buyback experiments, the current strategy is in an upgrade phase from conventional liquidity support to targeted short squeezing, shifting the industry's position from debt management to short-term market engineering.
Structural judgments indicate a transfer of pricing power, with the mechanism being that extreme CTA positions provide predictable triggers for buybacks, allowing policy interventions to dominate yield direction in the short term, leading to a shift in bond market pricing power from fundamentals and inflation expectations to technical positions and pre-election political windows.
ABAB News · Law of Cognition
- Extreme short positions are the best target for policy intervention.
- Buying time is more realistic than reversing trends.
- Pre-election narratives will ultimately yield to structural pressures.