Author of the original text: Long Yue

Source of the original text: Wall Street Insights

U.S. Treasury Secretary Benson took action this week: first, he loudly warned the market not to short the yen, which immediately strengthened the yen; shortly afterwards, he significantly expanded the scale of U.S. Treasury buybacks, trying to suppress long-term yields. As a result, the yen rose, but U.S. Treasuries fell.

Looking at the two events separately, each has its own logic. However, combined, they pose a dual threat to nearly four years of bullishness in U.S. stocks—the strengthening yen impacts carry trades, while rising Treasury yields suppress valuations.

On Wednesday, September 9, U.S. stocks declined for the third consecutive day. The Dow Jones fell over 400 points, down 0.8%; the S&P 500 fell 0.5%; and the Nasdaq dropped 0.6%. AI tech stocks were hit hardest.

The Treasury buyback "pea shooter," the market isn't buying it

On Wednesday, the U.S. Treasury announced it would raise the cap on a single long-term Treasury buyback to $6 billion, tripling the originally planned scale from last month.

However, market reaction was one of disappointment.

Previously, Benson had suggested the buyback scale could exceed $4 billion, and Wall Street had expected the cap for a single operation could reach $8 billion to $10 billion. When the $6 billion figure was announced, Treasury yields rose instead of falling.

The 10-year Treasury yield touched 4.836% intraday, the highest since October 2023. The 30-year Treasury yield was reported at 5.285%, nearing last month’s twenty-year peak of 5.30%.

Elias Haddad from Brown Brothers Harriman & Co. was direct: "For now, the Treasury is bringing a pea shooter to a tank battle."

Deutsche Bank strategist Steven Zeng also stated: "It's as if the Treasury has created a monster that now has to be constantly fed." He pointed out that the $6 billion announcement failed to bring the "deterrent effect" investors were expecting.

Later on Wednesday, the Treasury auctioned off $39 billion in 10-year Treasuries at a yield of 4.834%, setting a record high yield for that maturity in auction history.

Mackenzie Investments Chief Fixed Income Strategist Dustin Reid said: "How they manage this situation is still in the early stages. The Treasury is unlikely to be very satisfied with today's market reaction."

Benson himself admits: can't control the "equilibrium" price

In the face of the market's strong reaction, Benson admitted at an event in Texas on Tuesday that he could not change the "equilibrium" price of Treasuries, and the goal was only to slow the pace of price fluctuations and prevent harmful narratives from solidifying and spreading.

He attributed the rapid rise in long-term rates to market panic over "America's inability to repay its debts," calling this concern "absurd, but at one point it became the dominant narrative."

Wells Fargo macro strategists Angelo Manolatos and Francis Brown pointed out in their research report that "other catalysts are needed to push down long-term yields," including slowing growth and inflation, falling energy prices, reduced uncertainty in Federal Reserve policy, fiscal consolidation, or a contraction in corporate bond issuance.

The current reality is: none of these conditions are in place. Persistently high oil prices continue to elevate inflation expectations, and the market currently prices in a 62% probability of a rate hike by the Fed at next week's FOMC.

Corporate bond issuance is also at a seasonal peak this week, with 18 borrowers issuing bonds on Tuesday, making it the third busiest trading day of the year.

"I'm the dealer"—the yen has gone up, but at what cost?

Just one day before the Treasury buybacks hit a wall, Benson issued a strong warning to traders shorting the yen at the same Texas event.

According to Bloomberg, he said: "I am the dealer now, so when we intervene in the yen, I know exactly what the Japanese, the Bank of Japan, and the Japanese decision-makers are going to do. If you want to bet against me, go ahead."

The confidence behind this statement comes from two aspects: first, Benson claims to have insights into the movements of Japanese policymakers; second, reports indicate that the Bank of Japan is inclined to raise the benchmark interest rate by 25 basis points this month.

The yen continued its upward momentum on Wednesday, reaching 153.49 yen to 1 U.S. dollar at one point, previously achieving the strongest level since February.

But the problem is: a stronger yen is not good news for U.S. stocks.

The rise of the yen, the "time bomb" of carry trades starts ticking

The yen has long been the cheapest funding currency globally. The typical logic of carry trades is: borrow low-yielding yen, convert it to dollars, and then buy high-yield assets like U.S. tech stocks.

A stronger yen means that the cost of this trade rises, putting pressure on holders to close their positions.

Interactive Brokers Chief Strategist Steve Sosnick noted that the current momentum of the yen's rise, "is already enough to shake some who have borrowed yen and leveraged bets on soaring U.S. stocks."

Goldman Sachs Delta-One business head Rich Privorotsky also pointed out that regardless of how one interprets Benson's words, "the yen is objectively continuing to appreciate, and the market is betting on the Bank of Japan tightening its policy and capital flowing back."

He further posed a key question: "What happens when the carry trades in yen are closed, and funds flow back into Japanese bonds and stocks?"

His judgment is: "The S&P and large-cap stocks feel inexplicably heavy without any obvious fundamental reasons. It’s worth noting that some leveraged and carry positions may be quietly diffusing out of the system."

GammaRoad Capital Partners Chief Investment Officer Jordan Rizzuto characterized it directly: "This is the biggest risk facing the bull market."

Benson's dilemma: the yen cannot be too weak, nor too strong

There is an intrinsic contradiction challenging Benson's policy logic.

According to MarketWatch, Japan's holdings of foreign securities at the end of August have decreased by nearly $88 billion. Japan has long been a significant holder of U.S. Treasuries.

GammaRoad’s Rizzuto pointed out that if Japan is recently selling off Treasury assets, this is something to watch closely—because it happens right after the U.S. and Japan intervened in the foreign exchange market to support the yen. "This makes you feel the weight of these two events," he said.

The Treasury hopes for the yen to be strong enough so that Japan does not need to sell Treasuries to raise funds. However, if the yen rises too sharply, massive unwinding of carry trades will have a more direct impact on U.S. tech stocks.

Traders have been privately discussing whether Benson may have reversed the causal relationship—hoping to relieve pressure on long-term Treasuries by pushing up the yen, while traditionally it is the interest rate differential that drives currency movements, not the other way around.

免责声明：本文章仅代表作者个人观点，不代表本平台的立场和观点。本文章仅供信息分享，不构成对任何人的任何投资建议。用户与作者之间的任何争议，与本平台无关。如网页中刊载的文章或图片涉及侵权，请提供相关的权利证明和身份证明发送邮件到support@aicoin.com，本平台相关工作人员将会进行核查。