BofA Warns of Bond Market Illusion: US Treasury Intervention Offers No Permanent Cure

While the US Treasury’s long-term bond buyback program has provided a temporary breather for global markets, Bank of America (BofA) strategists characterize this move as an artificial intervention masking structural vulnerabilities.

The "Bessent Option" and the Illusion of Quasi-QE

The team led by BofA chief strategist Michael Hartnett defines the buyback program as a "quasi-quantitative easing" (quasi-QE) step deployed by Treasury Secretary Scott Bessent to curb borrowing costs. This "policy panic" in the fixed-income market may place a temporary cap on bond yields, but it fails to promise a sustained decline.

The 5% Threshold and Downward Pressure on the Greenback

Tensions in the bond market continue to escalate amid mounting concerns over US public debt. Key highlights from the report include:

■30-year bond yields climbed to their highest level in two decades prior to the buyback announcement.

■Despite temporary relief, long-term yields maintained their elevated trajectory above 5.20%.

■10-year yields reached levels not seen since US President Donald Trump took office.

■If Secretary Bessent fails to push 30-year yields below the 5% threshold, downward pressure on the US Dollar is expected to intensify, triggering short-selling in risky assets.

Polarized Capital Flows: Tech Outflows vs. Equity Inflows

While the bond market turbulence led to weekly losses in the S&P 500, a sharp divergence is visible in investor fund flows:

■BofA’s Bull & Bear Indicator remains firmly in "extreme bull" territory.

■According to EPFR data, US equity funds attracted nearly $29 billion in fresh capital during the week ending August 19.

■Conversely, the semiconductor sector experienced its third consecutive week of outflows, with total redemptions reaching $6.3 billion.

From my perspective as a former banker and credit policy director, I view the US Treasury's intervention as a "macroprudential bypass." These liquidity injections in developed markets exert indirect yet severe pressure on commercial loan costs in emerging economies. The US sovereign borrowing cost lingering above 5% forces global funds to demand higher yields, driving capital away from emerging markets and inflating syndication costs for local banks. Once the banking sector begins pricing the true risk premium hidden behind these quasi-QE measures, a global contraction in credit availability—from SMEs to large corporates—will become inevitable.